March 2005 

Mar

to Congress 

ch 2005

ongress
IG’s
 

Semiannual Report
 

to Congress
 

March 2005 
UNITED STATES DEPARTMENT OF COMMERCE 

The Inspector General 

Washington, D.C. 20230 

March 2005 

The Honorable Carlos M. Gutierrez 

Secretary of Commerce 

Washington, D.C. 20230 

Dear Mr. Secretary: 

I am pleased to provide you with the Inspector General’s Semiannual Report to Congress for the first half of fiscal year 

2005. The Inspector General Act requires that we twice annually prepare this report summarizing our assessments of 

Commerce activities and operations and that you transmit it, with any comments you may wish to add, to Congress within 

30 days of receiving it. 

This is the first semiannual report we have prepared under your watch as Commerce Secretary.You will find that it contains 

the outcome of much of the work I briefed you on in our initial meeting shortly after your confirmation. My purpose with 

each semiannual is to offer you a concise, ready source of insight into the strengths and weaknesses of departmental 

operations and to highlight any improvements we believe are necessary to correct deficiencies. The ultimate goal in this and 

of all our reporting and other communications is to ensure this Department fulfills its many critical roles as effectively as 

possible. I view Commerce’s success in this endeavor as very much a partnership between us, and I am confident that under 

your leadership the Department will continue to make strides toward resolving the management challenges and any other 

issues my office identifies. 

In fact, during the past 6 months, we have noted significant progress on several key challenge areas, as evidenced by the 

Department’s development of a plan to eliminate its information security material weakness, steps to strengthen acquisition 

planning and management, and actions to further enhance the export control process. In work currently under way, I am 

pleased to report strong focus on the part of your senior officials in addressing other crucial issues—emergency preparedness, the 2010 decennial, and marine resource management, to name a few. At the same time, Commerce continues to face 

considerable challenges in addressing these issues and a number of other fundamental areas such as improving performance 

measurement throughout the Department and enhancing human resource operations at USPTO. 

Secretary Gutierrez, I trust that you will find this and future semiannual reports useful in your efforts to guide this Department. I again welcome you to Commerce, and I look forward to working with you. 

Sincerely, 

Johnnie E. Frazier 
Contents
 

IG’s Message to Congress ...................................................................................................................................................................... 1
 

Major Challenges for the Department .................................................................................................................................................. 3
 

Strengthen Department-Wide Information Security ......................................................................................................................... 3
 

Effectively Manage Departmental and Bureau Acquisition Processes ............................................................................................. 4
 

Enhance USPTO’s Ability to Manage and Operate Its Own Processes ............................................................................................ 4
 

Control the Cost and Improve the Accuracy of Census 2010 ........................................................................................................... 5
 

Monitor the Effectiveness of NOAA’s Ocean and Living Marine Resources Stewardship .............................................................. 6
 

Promote Fair Competition in International Trade ............................................................................................................................. 6
 

Enhance Export Controls for Dual-Use Commodities ...................................................................................................................... 7
 

Enhance Emergency Preparedness, Safety, and Security of Commerce Facilities and Personnel .................................................... 8
 

Continue to Strengthen Financial Management Controls and Systems ............................................................................................ 8
 

Continue to Improve the Department’s Strategic Planning and Performance Measurement in Accordance with GPRA ................ 9
 

Agency Overviews 

Bureau of Industry and Security...................................................................................................................................................... 11
 

Economic Development Administration ......................................................................................................................................... 15
 

Economics and Statistics Administration ........................................................................................................................................ 17
 

International Trade Administration ................................................................................................................................................. 21
 

National Oceanic and Atmospheric Administration ........................................................................................................................ 25
 

National Telecommunications and Information Administration ..................................................................................................... 29
 

Technology Administration ............................................................................................................................................................. 31
 

United States Patent and Trademark Office .................................................................................................................................... 35
 

Department-Wide Management ...................................................................................................................................................... 37
 

Office of Inspector General ................................................................................................................................................................. 41
 

Tables and Statistics ........................................................................................................................................................................ 43
 

Reporting Requirements .................................................................................................................................................................. 51
 

Acronyms ............................................................................................................................................................................................... 53
 

Types of OIG Work Products .............................................................................................................................................................. 55
 

Inspector General’s 

Message to Congress 

I am pleased to submit the Office of Inspector General’s semiannual report covering our work from October 1, 2004, through 

March 31, 2005—our first semiannual report for the 109th Congress and the new Secretary of Commerce, the Honorable Carlos 

Gutierrez, as well as the first to reflect the priorities set out in our 

draft FY 2005-2007 work plan. We look forward to working with 

you, Secretary Gutierrez, and Department officials to address the 

management challenges that face Commerce and respond to the 

President’s Management Agenda. 

ness and began discussions with the units on ways to strengthen 

their C&A packages. We plan to work closely with the Department’s 

Chief Information Officer and other officials until the security status of all Commerce IT systems and data has improved. 

Securing technologies and technical information that have potential military applications was another key focus of our work: pursuant to the National Defense Authorization Act, we assessed the 

Bureau of Industry and Security’s (BIS’) licensing process for 

“Our partnership with Congress and departmental officials 

is essential to ensuring that Commerce not only effectively 

fulfills its stated mission but also reaches its potential for 

promoting the public good.” 

During the past 6 months, we identified savings for the Department of more than $20 million in just 23 audits. Our investigations have recovered significant taxpayer dollars as well, and resulted in a number of criminal convictions. We have made numerous recommendations that, when implemented, will improve 

Commerce’s acquisition management, strengthen security over its 

critical data, enhance program delivery, and promote operational 

efficiency. 

For example, we audited several task orders issued under a Census Bureau contract that to date has paid out some $63 million. In 

one case, we recommended that $2.3 million of the $5.8 million 

billed under the task order be disallowed. In another, we identified approximately $1.7 million in unsupported billings and more 

than $3 million in unapproved subcontract costs. 

We continued our focus on information security with efforts to 

help the Department eliminate the material weakness we identified in our FY 2004 evaluation, performed under the Federal Information Security Management Act (FISMA). This is the fourth 

consecutive year that our FISMA work has reported deficiencies 

serious enough to warrant a material weakness finding because of 

certification and accreditation (C&A) problems in many Commerce 

operating units. During this reporting period, we provided comment on the Department’s plan for eliminating the material weakchemical and biological commodities as our part in the annual 

interagency review of U.S. licensing processes. Enhancing export 

controls for dual-use commodities to ensure they do not fall into 

the hands of countries and entities of concern remains a critical 

management challenge for the Department. I am pleased to report 

that BIS’ licensing operations are generally sound, and the agency 

was receptive to our recommendations for further improvement. 

With regard to our investigative activities, we concluded several 

key cases during the reporting period—one involving the conviction of the last of four local officials in connection with the fraudulent use of federal grant funds. This individual was ordered to pay 

$723,553 to the government, including $145,221 that will be returned to Commerce’s Economic Development Administration, 

and sentenced to 41 months in prison. He will also be debarred 

from receiving future federal contracts or awards. 

Over the course of the coming months, as we pursue other priority areas, we will keep you apprised of our findings as well as 

Commerce’s progress at meeting the management challenges we 

have identified. This communication and our partnership with you 

and departmental officials are essential to ensuring that Commerce 

not only effectively fulfills its stated mission but also reaches its 

potential for promoting the public good. I look forward to our 

continued collaboration toward that end. 

March 2005/Semiannual Report to Congress 1 
2 U.S. Department of Commerce/Office of Inspector General 
Major Challenges for the Department
 

The Office of Inspector General, in assessing its work at the close 

of each semiannual period, develops its list of Top 10 Management Challenges the Department faces. Each challenge meets one 

or more of the following criteria: (1) it is important to the Department’s mission or the nation’s well-being, (2) it is complex, (3) it 

involves sizable resources or expenditures, or (4) it requires significant management improvements. Because of the diverse nature of Commerce activities, these criteria sometimes cut across 

bureau and program lines. Experience has shown that by aggressively addressing these challenges the Department can enhance 

program efficiency and effectiveness; eliminate serious operational 

problems; decrease fraud, waste, and abuse; and achieve substantial savings. 

Challenge 1 

STRENGTHEN DEPARTMENT-WIDE 

INFORMATION SECURITY 

In FY 2005, the Department will spend some $1.4 billion of its 

$5.7 billion budget on information technologies and related security. Systems supporting NOAA’s ocean and environmental missions, the Census Bureau’s statistical operations, and BIS’ export 

control activities are just a few of Commerce’s many critical information assets that provide data and operations essential to the nation’s 

well-being. Despite improvements in cyber security over the years, 

Commerce continues to face significant challenges in adequately 

protecting its systems and data from loss or compromise. 

For the past 4 years we have advised the Department to report 

information security as a material weakness, based on the findings of our annual review mandated by the Federal Information 

Security Management Act of 2002 (FISMA).1 The Department 

has reported it as such in its Performance & Accountability Report for all 4 years. 

Our most recent FISMA evaluation continued to identify problems with certification and accreditation (C&A) in many of the 

Department’s operating units, particularly in their conduct of such 

1 FISMA provides a comprehensive framework for ensuring that information 

resources supporting federal operations and assets have effective security controls. The act requires OIGs to perform independent security evaluations of their 

agencies annually. 

TOP 10 MANAGEMENT CHALLENGES 

1. Strengthen Department-wide information security. 

2. Effectively manage departmental and bureau acquisition 

processes. 

3. Enhance USPTO’s ability to manage and operate its 

own processes. 

4. Control the cost and improve the accuracy of Census 

2010. 

5. Monitor the effectiveness of NOAA’s ocean and living 

marine resources stewardship. 

6. Promote fair competition in international trade. 

7. Enhance export controls for dual-use commodities. 

8. Enhance emergency preparedness, safety, and security 

of Commerce facilities and personnel. 

9. Continue to strengthen financial management controls 

and systems. 

10. Continue to improve the Department’s strategic planning 

and performance measurement in accordance with GPRA. 

critical C&A activities as assessing risk, accurately identifying 

system components, and testing security controls. When implemented properly, certification is a powerful tool for helping ensure that appropriate security controls are in place, functioning 

properly, and producing the desired outcome. Through accreditation, agency officials formally accept responsibility for the security of the systems over which they have management, operational, 

and budget authority and for any adverse impacts to the Department should a breach in security occur. 

In February 2005, the Department’s Chief Information Officer issued a plan to address the material weakness. The plan’s goal is to 

ensure that sufficient progress is made to eliminate the basis for 

the IT security material weakness by the end of FY 2005. It focuses on putting in place repeatable processes that produce acceptable quality C&A packages in all operating units and completing packages for all national-critical systems and some mission-critical systems by fiscal year-end. It includes schedules that 

were developed in collaboration with the operating units and plans 

of action and milestones to track progress. It also provides for increased oversight by the Department and bureau CIOs. The Department CIO believes the plan establishes achievable schedules 

and an approach that will yield acceptable quality C&A packages. 

We have not yet had the opportunity to review the schedules. 

March 2005/Semiannual Report to Congress 3 
Major Challenges for the Department 

Department-wide Contract 

Security Deficiencies Remain 

Last fiscal year, to help Commerce secure information and information systems handled by contractors, we recommended that it 

take steps to incorporate its two new security clauses2 into service contracts and provide appropriate contract oversight. (See 

September 2004 Semiannual Report, page 43.) The first clause 

contains requirements for protecting Commerce information resources used by contractors, as well as contractor-owned systems 

that interconnect with a Department network or store or process 

Commerce data. The second clause requires appropriate background investigations and IT security awareness training for contractor personnel who access Commerce systems. 

In response to our recommendations, the Department’s acquisition management and CIO offices reviewed a sample of IT service contracts and presented their results in the annual Department of Commerce IT Contract Compliance Review Report.3 The 

review looked at 80 of the Department’s nearly 2,600 IT service 

contracts, found that only 29 percent of the sample contained both 

security clauses, and noted considerable confusion among contracting officials regarding their applicability. These findings point 

to the need for further efforts to clarify the clauses and ensure 

their appropriate inclusion in contracts. In addition, it is not clear 

whether the Department has identified all contractor operations 

and facilities subject to IT security safeguards (i.e., all those connected to Commerce networks or that process or store sensitive 

Commerce information). As part of our FISMA work this fiscal 

year, we are reviewing IT service contracts for this purpose as 

well as to determine whether such contracts incorporate and appropriately implement the security clauses. 

Challenge 2 

EFFECTIVELY MANAGE 

DEPARTMENTAL AND BUREAU 

ACQUISITION PROCESSES 

The Department spends more than $1.75 billion annually—nearly 

30 percent of its budget—procuring goods and services. Yet for 

Commerce and most other federal agencies, effective acquisition 

management has been a long-term problem, and both OMB and 

the Government Accountability Office fault agencies for inadequate oversight of procurements. 

2

 Issued in November 2003 by the Office of Acquisition Management. 

3 Department of Commerce IT Contract Compliance Review Report, prepared for 

U.S. Department of Commerce, Office of the Chief Information Officer, Office of 

IT Security, Infrastructure and Technology, by GNS, Inc., Germantown, MD, September 30, 2004, ITCR-2004-004-001. 

Commerce has acknowledged 

the need for better acquisition 

planning and management, 

and has taken steps to improve. These include increasing training for contracting 

officer representatives and 

other contracting professionals, and creating an 

intradepartmental task force to 

develop guidance for standardizing the interagency 

agreement process Department-wide. But our reviews 

continue to identify weaknesses stemming from inadequate oversight of one or NOAA’s Geostationary Operational 

more aspects of the acquisition Environmental Satellites orbit the 

process—solicitation; devel- earth monitoring impending severe 

opment of clear, consistent weather conditions. The first GOES 

was launched in 1974. NESDIS cur- contract specifications; open rently is acquiring several additional and rigorous competition to GOES through NASA. 

secure best value; and contract Source: www.nosa.noaa.gov/ descriptions/ management. For example, nesdis/goes.html. 


our recent audits of three task 


orders for $17.6 million in ITservices issued under a Census Bu­


reau contract questioned a total of $8.5 million in unsupported or 


unapproved costs. (See page 19.) 


With numerous high-cost acquisitions planned for the coming 

years, the Department must continue to give careful attention to 

its acquisition policies and procedures to protect the investment 

of public dollars and ensure best value. NOAA’s planned acquisition of geostationary operational environmental satellites (GOESR project) is one such procurement that will bear close watching. 

This project will be the largest single acquisition contract NOAA 

has ever awarded—with total cost expected to exceed $4 billion. 

Challenge 3 

ENHANCE THE U.S. PATENT AND 

TRADEMARK OFFICE’S ABILITY TO 

MANAGE AND OPERATE ITS OWN 

PROCESSES 

USPTO continues its transformation to a performance-based organization that, like a business, has the flexibility to adapt to changing market forces and meet the needs of consumers. Controlling 

its budget, procurements, and personnel decisions offers the agency 

opportunities for operational efficiencies and strengths, but brings 

new management challenges as well. 

4 U.S. Department of Commerce/Office of Inspector General 
USPTO’s new headquarters in Alexandria, VA. 

Source: USPTO. 

Our recent work on patent examiner production goals, performance 

appraisal plans, and awards; USPTO’s new headquarters complex; 

and its Office of Human Resources identified problems that could 

potentially undercut its efficiency as a performance-based organization. (See September 2004 Semiannual Report, pages 38-40.) 

To improve examiner production, we recommended that USPTO 

consider revising patent examiner goals to reflect efficiencies in 

automated work processes and evaluate its patent examiner award 

system to determine whether a more effective way of increasing 

production exists. USPTO concurred with our recommendations 

and agreed to reassess the current patent examiner goals, performance, performance appraisal plans, and award system. 

Our report on the agency’s move to its new headquarters recommended that USPTO finalize an occupancy agreement with the 

General Services Administration and submit the required documentation for additional space to accommodate future staff growth. 

USPTO’s current complement of staff will fill all available space 

in the new complex. 

Finally, our audit of Office of Human Resources activities concluded that USPTO had ignored hiring practices, merit system 

principles, and sound human resource policies and procedures 

when recruiting a new personnel director. The agency was generally receptive to our recommendations for improving administration of human resources, but, unfortunately, our ongoing work 

continues to reveal serious problems in its personnel practices, 

which must be resolved. USPTO anticipates hiring hundreds of 

examiners and other staff in the coming fiscal year. It is crucial 

that its policies and practices for doing so comply with all applicable federal requirements. 

We will continue to monitor the agency’s handling of critical functions, its success at using its flexibilities as a performance-based 

organization, and any related impacts on the effectiveness of its 

operations. 

Major Challenges for the Department 

Challenge 4 

CONTROL THE COST AND 

IMPROVE THE ACCURACY OF 

CENSUS 2010 

Commerce is at the midpoint of its decade-long preparations for 

the 2010 decennial. With estimated costs of more than $9 billion,4 this decennial census is one of the most costly operations— 

and among the most critical—the Department undertakes. 

The Census Bureau’s plans and activities for the upcoming decennial remain a major focus of our work, as we monitor its attempts to capitalize on new technologies. Our assessment of the 

2004 census test found that handheld computers and related automation are promising replacements for paper-based processes, and 

that the enumerator workforce was able to use the devices. This 

was the first of two scheduled site tests of concepts, systems, and 

procedures being evaluated for the 2010 census. (See September 

2004 Semiannual Report, page 20.) But we noted problems with 

data transmissions, technical field support, enumerator training, 

testing of revised group quarters definitions, and various management and administrative activities. These must be resolved for the 

bureau to meet accuracy and cost-containment goals. 

Enumerators tested the feasibility of using handheld computers to gather 

census data in the 2004 test. Refinements to the process will be tested in 

2006. 

Source: U.S. Census Bureau. 

4

 In constant 2000 dollars. 

March 2005/Semiannual Report to Congress 5 
Major Challenges for the Department 

We have initiated work to assess the bureau’s response to our recommendations regarding efforts to improve the master address file.5 

We are also reviewing the bureau’s Field Data Collection Automation (FDCA) program—a massive effort to acquire and manage 

field automation for the 2008 dress rehearsal and 2010 census. 

The Census Bureau had intended to develop FDCA in-house with 

contractor support. But in early 2004, Census determined that it 

did not have the technical resources to do so while simultaneously 

supporting the 2004 and 2006 field tests. Consequently, the bureau plans to hire a contractor to develop, test, and deploy technology and provide support services for 12 regional centers and more 

than 450 local census offices, which at their peak, support more 

than 500,000 temporary field staff employees. 

We will soon begin work on the 2006 census test, which will include follow-up on issues identified in our report on the 2004 test 

(Improving Our Measure of America: What the 2004 Census Test 

Can Teach Us in Planning for the 2010 Decennial Census, OIG16949/September 2004). 

Challenge 5 

MONITOR THE EFFECTIVENESS OF 

NOAA’S STEWARDSHIP OF OCEAN 

AND LIVING MARINE RESOURCES 

The U.S. Commission on Ocean Policy, in its final report—An 

Ocean Blueprint for the 21st Century—pointed to NOAA’s critical 

role in protecting our nation’s ocean and coastal resources. As the 

lead agency for marine resource protection, NOAA encompasses 

the single largest number of civilian ocean programs, and the commission report envisioned these responsibilities expanding. 

We plan to give close attention to a number of NOAA’s broader 

environmental stewardship responsibilities in the coming years, targeting such high-profile activities as Coastal Zone Management, 

the National Estuarine Research Reserve System, National Marine 

Sanctuary programs, and the Pribilof Islands restoration project. 

We may also focus on NOAA’s coral reef, aquaculture, and marine 

debris responsibilities; expansion of the tsunami detection and warning system; and the proposed Integrated Ocean Observing System. 

Our series of reviews of salmon recovery programs continued 

during this semiannual period with audits of three more programs 

funded by NOAA’s Pacific Coastal Salmon Recovery Fund. As 

with the audits we detailed in our September 2004 semiannual 

report (pages 31-32), we questioned significant costs and noted 

administrative weaknesses in two of the programs we reviewed. 

5 U.S. Department of Commerce Office of Inspector General, A Better Strategy Is 

Needed for Managing the Nation’s Master Address File, Report Number OSE12065/September 2000. 

NOAA has been removing thousands of tons of debris, contaminated soil, 

and inactive landfills in the Pribilof Islands Environmental Restoration 

Project. The U.S. Fish and Wildlife Service Vessel PENQUIN II, seen here 

off a cobblestone beach in the Pribilof Islands, supplies everything needed 

by the Aleuts who live there. 

Source: NOAA photo library. 

We are working with NOAA to resolve any common problems 

we identify with administration of these grants as our series 

progresses. 

Other key areas we hope to focus on include the effectiveness of 

specific areas of scientific research and research management at 

NOAA, including the agency’s process for maintaining scientific 

integrity and quality. 

Challenge 6 

PROMOTE FAIR COMPETITION 

IN INTERNATIONAL TRADE 

The Department of Commerce, through ITA, is charged with promoting trade, opening overseas markets to American firms, and 

ensuring compliance with U.S. laws designed to protect U.S. industry from unfair competition from imports. As foreign exporters continue to spawn aggressive strategies targeting lucrative 

American markets, ITA’s mission becomes ever more difficult and 

the need for a strong response, imperative. 

During this semiannual period, we assessed ITA’s management of 

the administrative review program for antidumping6 duty orders, 

a function of the agency’s Import Administration (IA). Adminis6 The U.S. antidumping statute is designed to prevent foreign firms from selling a 

good in the United States at prices below those at which the good is sold in their 

home market, or, in some limited instances, below the cost of production. 

6 U.S. Department of Commerce/Office of Inspector General 
Major Challenges for the Department 

trative reviews determine the final duty rates on imports from a 

specific country that have been found previously to be dumped in 

U.S. markets. We found, among other things, that the agency needs 

to strengthen its policies, procedures, and standards for conducting these reviews and improve several administrative practices (see 

page 21). 

In upcoming reporting periods, we plan to assess the Department’s 

efforts to expand U.S. market opportunities and overcome trade 

barriers in some of the most difficult and potentially rewarding 

foreign markets—China, Russia, and perhaps some South American countries. We will continue to monitor the effectiveness of 

overseas posts and domestic U.S. export assistance centers in helping U.S. companies compete for market share abroad, assess customer satisfaction with ITA products and services, and evaluate 

ITA’s export success reporting—one of its key performance measures. Our inspections of post activities in Turkey, Greece, and 

India and our reviews of export assistance centers in Chicago, the 

Pacific Northwest, and Philadelphia identified problems with export success reporting, including inaccurate and overstated U.S. 

value and unverifiable success stories (see March and September 

2004 Semiannual Reports, pages 24 and 25, respectively). In response, ITA has taken a number of steps to improve quality controls, oversight, and management accountability for the accuracy 

and integrity of export success reports. We will continue to monitor these areas, including ITA’s financial controls and resource 

management, and will report on the Department’s efforts to resolve issues we identify. 

We also intend to build on our survey work at the Import Administration by looking at the verification process for antidumping 

cases, and to assess ITA’s new Manufacturing and Services Unit 

and its efforts to enhance competitiveness of U.S. manufacturers 

and industry. 

Challenge 7 

ENHANCE EXPORT CONTROLS 

FOR DUAL-USE COMMODITIES 

Commerce must balance the nation’s economic interests in increasing trade with the realities of national security by controlling 

the export of technology and materials that have both civilian and 

military applications. The Bureau of Industry and Security (BIS) 

oversees the federal government’s export licensing and enforcement system for these dual-use commodities, and we devote considerable, ongoing attention to its efforts. Rogue countries and 

terrorist groups pose great threats to U.S. national security and 

foreign policy goals. A strong, effective export control system is 

essential to keeping sensitive items and technology from those 

seeking weapons of mass destruction. 

NDAA Reviews 

The National Defense Authorization Act (NDAA) for Fiscal Year 

2000, as amended, directed the inspectors general of Commerce, 

Defense, Energy, and State, in consultation with the directors of 

Central Intelligence and the Federal Bureau of Investigation, to 

report to Congress annually (through 2007) on the adequacy of 

export controls and counterintelligence measures in preventing 

the acquisition of sensitive U.S. technology and information by 

countries and entities of concern. 

To meet NDAA’s FY 2005 requirement, we assessed BIS’ licensing process for chemical and biological commodities to determine 

whether the process is timely, complies with statutory and regulatory requirements, and considers the cumulative effect of prior 

technology transfers to end users. We also assessed information 

sharing among the various agencies involved in reviewing licenses, 

their process for resolving disputes, and BIS’ procedures for revising the Commerce Control List. (See page 11.) 

EXAMPLES OF DUAL-USE TECHNOLOGIES 

Technologies Civilian Use Military Use 

Remote sensing Earth observation ‘Spy’ satellites for 

(optical radar) satellites for weather combat intelligence, 

forecasting, arms control 

mapping, etc. verification, etc. 

Advanced Space transportation ICBMs 

ballistics and systems (launchers); (Intercontinental 

missiles sounding rockets Ballistic Missiles); 

(for microgravity short range surfaceexperiments) to-surface missiles 

Biotechnologies Aerospace medicine; 

medical research 

Biological weapons 

Satellite Telephony, Internet, Military 

communications broadcasting communications 

Source: www.futuraspace.com/Dual_Use_fact_sheet.htm. 

NDAA for FY 2001 requires the IGs to also report on the status of 

recommendations made in prior-year reviews. This year’s followup covered reviews conducted from 2001 through 2004 (no recommendations remain outstanding from our FY 2000 report). We 

were pleased to find that Commerce made progress on a number 

of outstanding issues, but some key recommendations remain 

unresolved (see page 13). 

March 2005/Semiannual Report to Congress 7 
Major Challenges for the Department 

With regard to our 2004 NDAA review, which looked at whether 

deemed export controls7 are effective in preventing the inappropriate transfer of sensitive technologies to foreign nationals in the U.S., 

we are encouraged by BIS’ bolstered commitment to enhancing its 

administration and enforcement of these controls. We believe the 

bureau’s increased attention to the problems we identified—along 

with greater awareness among industry, academia, and federal research laboratories—will result in greater compliance and reduce 

opportunities for inappropriate transfer of protected technology and 

information. (See March 2004 Semiannual Report, page 14.) 

BIS must remain vigilant in targeting federal licensing and enforcement efforts on those exports that present the greatest proliferation and national security risks and in streamlining or eliminating controls that unnecessarily hamper trade. Legislation to 

replace the expired Export Administration Act is essential to these 

efforts and to bolstering BIS’ regulatory authority, stiffening penalties, and demonstrating America’s commitment to a strong, effective system of export controls. 

Challenge 8 

ENHANCE EMERGENCY 

PREPAREDNESS, SAFETY, AND 

SECURITY OF COMMERCE 

FACILITIES AND PERSONNEL 

Tense international conditions have increased America’s need to 

prepare for physical threats to U.S. government facilities and personnel. For Commerce—with more than 35,000 employees in 

hundreds of facilities worldwide—the task of safeguarding departmental personnel and property is daunting. After our April 

2002 report on the status of Commerce’s emergency preparedness and security programs identified significant vulnerabilities, 

we added this issue to our list of top management challenges. 

During this reporting period, we began reviewing the Department’s 

progress in addressing the concerns raised in our 2002 report and 

examined several key initiatives it has undertaken. Current policy 

assigns Commerce’s Office of Security (OSY) responsibility for overseeing and coordinating emergency preparedness, but leaves primary 

responsibility for implementing site-specific measures with the bureaus and facility managers. We found that OSY more than tripled 

the number of risk assessments it conducted in fiscal year 2004. 

Our preliminary findings also indicate that the Department has improved building security, access controls, and the response capabilities of its security guard forces. But we have noted inadequate 

7 According to the Export Administration Regulations, any release to a foreign 

national of technology or software subject to the regulations is “deemed to be an 

export to the foreign national’s home country.” 

The Department has assembled and equipped teams of volunteer employees at its facilities to implement evacuation procedures in case of an 

emergency. 

Source: OIG. 

departmental guidance on implementing effective preparedness programs and insufficient oversight of bureau compliance with established policies and procedures, which may undercut its efforts. We 

will report the final results of this review in our next semiannual. 

Challenge 9 

CONTINUE TO STRENGTHEN 

MANAGEMENT CONTROLS AND 

SYSTEMS 

Commerce has significantly improved its financial management 

over the past decade: it has received unqualified opinions on its 

consolidated financial statements for 6 consecutive years, implemented the Commerce Administrative Management System (now 

called Commerce Business Systems), and substantially complied 

with the Federal Financial Management Improvement Act. These 

successes reflect management’s commitment to and success at 

addressing the findings of deficient internal controls and financial 

management systems identified in our audits and other reviews. 

8 U.S. Department of Commerce/Office of Inspector General 
Major Challenges for the Department 

EXCERPT: Dec. 21, 2004, Transmittal Letter for Circular
 

No. A-123, Revised, from the Office of Management and
 

Budget
 

Actions Required. Agencies and individual federal managers 

must take systematic and proactive measures to (i) develop 

and implement appropriate, cost-effective internal control for 

results-oriented management; (ii) assess the adequacy of 

internal control in federal programs and operations; (iii) 

separately assess and document internal control over financial 

reporting consistent with the process defined in Appendix A; 

(iv) identify needed improvements; (v) take corresponding
 

corrective action; and (vi) report annually on internal control
 

through management assurance statements.
 

Federal law requires agencies to prepare and disseminate financial information, including audit reports on their financial statements, to enable Congress, agency executives, and the public to 

assess an agency’s operational and program management and to 

determine whether its financial management systems comply with 

legislative mandates. But reliable financial reporting and effective, efficient program operations depend on strong internal controls. And beginning in FY 2006 under the revised OMB Circular 

A-123, agencies must assess internal controls over financial reporting, document those controls and the assessment process, and 

provide an assurance statement on the effectiveness of internal 

control over financial reporting in their annual Performance & 

Accountability Report. 

We will continue to monitor a range of financial management issues, including the Department’s efforts to implement the new A123 requirements, improve internal controls, and achieve other 

operating efficiencies identified in the annual audit management 

letter. We will also continue to monitor the International Trade 

Administration’s progress toward complying with OMB Circular 

A-25 requirements for fully recovering the costs of products and 

services it provides, and the use of Commerce Business Systems 

to conduct financial and budgeting operations. 

CHALLENGE 10 

CONTINUE TO IMPROVE THE 

DEPARTMENT’S STRATEGIC 

PLANNING AND PERFORMANCE 

MEASUREMENT IN ACCORDANCE 

WITH THE GOVERNMENT 

PERFORMANCE AND RESULTS ACT 

The basic tenet of GPRA is that measuring performance will inform funding decision-making and ultimately improve government programming and spending. Performance budgeting—as 

implemented by OMB—is based on a similar assumption: that by 

putting performance information alongside budget amounts, funding choices focus on program results and budget decision-making 

improves. The success of either approach relies on the quality of 

reported data. 

Though the Department has strengthened its performance reporting under GPRA, our audits of six Commerce operating units continue to identify the need for enhanced internal controls to ensure 

that performance measures are appropriate and understandable, 

and reported data is accurate and reliable for making funding decisions. 

The Department is reviewing its performance and data validation 

processes in response to our findings and recommendations. It 

has developed a new quarterly monitoring process that examines 

performance data and the measures themselves. The process requires bureau under secretaries to attest to the validity of data and 

verify that the measures and reported information accurately reflect a bureau’s accomplishments. 

We are now conducting our ninth audit specifically aimed at performance measurement and reporting—this time at the Minority 

Business Development Agency (MBDA). Our earlier reviews of 

MBDA grant recipients found varying degrees of noncompliance 

with performance guidance and inadequate management controls 

for ensuring that claimed performance is accurate, properly documented, and occurs within specified time frames. We have initiated a follow-up review of our prior audits to (1) assess bureau 

and departmental efforts to address identified deficiencies and 

strengthen performance measurement, and (2) determine whether 

additional efforts are needed to ensure that reported performance 

results are reliable and meaningful. 

EXCERPT: Government Performance Results Act of 1993 

SECTION 2. FINDINGS AND PURPOSES. 

(a) Findings. The Congress finds that­

(1) waste and inefficiency in federal programs undermine the 

confidence of the American people in the government and 

reduce the federal government’s ability to adequately address 

vital public needs; 

(2) federal managers are seriously disadvantaged in their
 

efforts to improve program efficiency and effectiveness,
 

because of insufficient articulation of program goals and
 

inadequate information on program performance; and
 

(3) congressional policymaking, spending decisions and 

program oversight are seriously handicapped by insufficient
 

attention to program performance and results.
 

March 2005/Semiannual Report to Congress 9 
10 U.S. Department of Commerce/Office of Inspector General 
BUREAU OF INDUSTRY 

AND SECURITY 

Review Finds Few Problems with Licensing 

The Process for Chemical and Biological Bureau of Industry and Security Commodities

is primarily responsible for 

administering and enforcing the nation’s To comply with the FY 2005 requirement of the National Defense Authorization 

system for controlling exports of sensitive Act (NDAA), the inspectors general at the departments of Commerce, Defense, 

dual-use goods and technologies. BIS’ major Energy, State, Agriculture, Health and Human Services, and Homeland Secufunctions include formulating and implementing rity, in consultation with the director of Central Intelligence, evaluated the 

export control policy; processing export license U.S. export licensing process for chemical and biological commodities to 

applications; conducting various policy, technical, determine whether current practices help deter the proliferation of chemiand economic analyses; promulgating regulations; cal and biological weapons.
 

conducting industry outreach; and enforcing the
 

Export Administration Act and regulations. BIS is Within Commerce, we evaluated BIS’ licensing process for these comdivided into two units: modities to determine whether the process is timely, complies with 

statutory and regulatory requirements, and considers the cumulative 

Export Administration implements U.S. export control effect of prior technology transfers to end users. We also assessed 

and nonproliferation laws and policies through export whether the various agencies involved in license review share inforlicensing, commodity classifications, and advisory mation among themselves and whether the dispute resolution proopinions; technical, economic, foreign availability, and cess is working. We did not evaluate the overall outcome of the lipolicy analyses; promulgation of regulations; and censing process and whether countries or entities were able to illeindustry outreach. It also conducts various defense gally acquire biological or chemical commodities by circumventing 

industry activities and enforces industry compliance the licensing process altogether.
 

with arms control treaties.
 

Our Findings 

Export Enforcement participates in reviews of 

export license applications and conducts criminal We found that BIS is catching some potentially problematic exports 

and administrative investigations relating to through its licensing process and denied 25 applications for chemical and 

the export control portions of the Export biological commodities in FY 2003. We also noted the following: 

Administration Act and regulations. It also 

administers and enforces the antiboycott Licensing process generally resulted 

provisions of the act and regulations. in timely decisions 

We compared 90 of the 1,803 chemical and biological license applications submitted in 

FY 2003 against BIS’ guidance for reviewing and processing them, and found the average 

time to process those that are not disputed by the other U.S. licensing agencies was 43.7 days— 

slightly higher than the agency’s goal of 40 days. (Defense, State, and Energy all completed their 

review of BIS applications within the 30-day deadline mandated by Executive Order 12981.) 

Executive Order 12981 and the Export Administration Regulations do not set explicit time requirements for the completion 

of license applications approved by the interagency group, but not escalated. The executive order and the regulations only provide time 

frames for escalated cases after the initial interagency referral process is completed. Currently, licensing officers have no time requirement for processing license applications once they are returned from interagency review. Setting internal BIS processing time frames 

could encourage timelier disposition of undisputed license applications. 

March 2005/Semiannual Report to Congress 11 
Bureau of Industry and Security 

Interagency review of license 

applications needs to sustain 

improvements in timeliness 

License applications for chemical and biological commodities also 

are reviewed by the Chemical and Biological Weapons Control 

Group, an interagency body of working-level representatives from 

State, Commerce (BIS), Defense, CIA, and Energy, commonly 

known as SHIELD. Should the agencies not reach agreement at 

SHIELD, applications are escalated to the operating committee, 

which has 14 days to reach a decision under Executive Order 

12981. The committee has improved its time to render decisions 

in recent years, but still rarely meets the 14-day requirement. In 

FY 2003, the committee averaged 51 days to reach a decision, 

but reduced that average to 22 days in FY 2004. The committee 

should work to sustain this significant improvement in the timeliness of its decisions. 

Recent improvements in the timeliness 

of changes to the Commerce Control 

List need to be maintained 

The Australia Group—which consists of the European Commission and 38 member countries—works to prevent the proliferation 

of chemical and biological weapons, and typically recommends 

new chemical and biological items for control each year. But for 

the past 7 years, BIS has taken an average of 10 months after receiving the group’s recommendations to publish newly regulated 

items on the Commerce Control List. BIS and the other licensing 

agencies cannot disclose such items to U.S. companies and cannot prevent newly regulated items from being exported until the 

items are published on the list. Changes from the Australia Group’s 

June 2004 meeting, however, were published on the list in just 6 

months. BIS officials say there were special reasons for speeding 

up the publication process in this instance. We recommend that 

BIS do whatever is necessary to maintain the relatively fast publication of the group’s guidelines and rule changes that impact the 

Commerce Control List. 

Australia Group should be notified 

of all license denials to trigger 

“no undercut” policy 

Under the Australia Group’s “no undercut” policy, members agree 

not to approve a license for an identical sale that was previously 

denied by another member without a consultation. The Department of State, as the lead U.S. representative to the Australia 

Group, is responsible for submitting license denials to the group, 

but only submits denials that involve exports to nongroup countries. State’s rationale for its decisions is not documented, which 

leads to confusion. Since August 2002, Commerce and State have 

disagreed about the U.S. policy for submitting denials to the Australia Group. 

Items on the Commerce Control List subject to Export Administration Regulations range from thermal switches to electric cattle prods to plastic handcuffs. 

Sources: Thermal switches—www.thermalswitch.com/ts250.shtml.
 

Cattle prods—www.redhillgeneralstore.com/A24333.htm.
 

Plastic handcuffs—www.sillyjokes.co.uk/wacky/props/plastic-handcuffs.html.
 

Unfortunately, the group’s policy on the reporting of denials is not 

detailed, so State interprets the policy one way and Commerce 

another. We recommend that BIS ask the State Department to seek 

a ruling from the Australia Group chair on which denials should 

be sent to the group and, based on the response, work with all the 

licensing referral agencies to develop and implement a written 

policy and procedures for handling the group’s denial notification 

process. 

BIS outreach efforts mainly target the 

biological exporting community and 

could be expanded 

Outreach to the exporting community is a critical component of 

BIS’ mission to build awareness of and compliance with export 

controls. BIS has a robust outreach program to the biological exporting community, but outreach to the chemical exporting community has been limited. BIS should explore ways to increase its 

outreach to the chemical community. The agency should also seize 

opportunities to conduct outreach to entities that work with select 

agents and toxins on the Commerce Control List and that are registered with the U.S. Department of Agriculture’s Animal and Plant 

Health Inspection Service (APHIS) and the U.S. Department of 

Health and Human Services’ Centers for Disease Control and Prevention (CDC). 

12 U.S. Department of Commerce/Office of Inspector General 
Bureau of Industry and Security 

BIS’ export enforcement office needs to 

act on the Treaty Compliance Division’s 

investigative referrals 

BIS’ Treaty Compliance Division helps ensure U.S. industry compliance with the Chemical Weapons Convention and other international treaties. One of the convention’s requirements imposed on 

industry is the submission of end-use certificates, within 7 days of 

the date of export, that state the types and quantities of chemicals 

being exported, the intended end-use for the chemicals, and certification that the chemicals will only be used for purposes not prohibited by the convention. Between FY 2002 and 2004, the Treaty 

Compliance Division identified 13 instances in which companies 

did not submit end-use certificates to BIS, and referred all 13 cases 

to BIS’ Office of Export Enforcement (OEE) for investigation. 

The Office of Export Enforcement opened nine investigations on 

cases referred by the Treaty Compliance Division, but had not given 

feedback to the division about the status of any of them. OEE officials reported to us that three of these cases had been closed— 

two of them prematurely and would thus be reopened. The remaining six cases remained open, with no action taken. We recommended that OEE keep the division informed about the status 

and outcome of investigations, and that the division track its referrals to OEE so it can follow up if it has not received status reports 

after a specified period of time. 

Agency Response 

BIS officials agreed with all of our recommendations and noted 

that some issues, such as publication of Australia Group guidelines and rule changes for inclusion on the Commerce Control 

List, still need clearance by the departments of State and Defense, 

and prior to publication, the Office of Management and Budget. 

In other areas, such as outreach to the chemical exporting community and the APHIS and CDC registered entities, BIS has already 

begun exploring ways to implement the recommendations. 

(Office of Inspections and Program Evaluations: IPE-16946) 

Export Control Follow-up 

Review Identifies Open 

Recommendations 

The National Defense Authorization Act requires the Office of 

Inspector General to report annually to Congress on the status of 

export control recommendations made in prior-year OIG reviews. 

This year’s follow-up covered annual reviews dating back to 2000.8 

We noted that the Department has made progress on a number of 

outstanding issues. However, recommendations remain open in 

all but the March 2000 report, for a total of 30 open items. 

March 2004 

Last year’s review looked at the effectiveness of deemed export 

controls in preventing the transfer of sensitive technology to foreign nationals in the United States. We made a total of 20 recommendations: 7 each to BIS and NIST, 5 to NOAA, and 1 to the 

Office of the Secretary. These mainly pertained to weaknesses in 

export control regulations and policies, as well as bureau compliance with licensing requirements. BIS has completed action on 2 

of the issues we identified, and is actively working with industry, 

academia, and federal research laboratories to address other key 

recommendations. NIST has completed action on 3 recommendations and made significant progress in addressing the 4 that remain open. Neither NOAA nor the Office of the Secretary has 

completed action on the recommendations pertaining to them. 

March 2003 

This review made 55 recommendations to BIS and 4 to ITA regarding their efforts to enforce export control laws and regulations, including those involving investigative processes, interactions with other law enforcement agencies and the intelligence 

community, license determinations, monitoring of compliance with 

license conditions, outreach to U.S. exporters, and end-use checks. 

All but 6 BIS recommendations have been resolved. Those open 

deal primarily with checking exporters’ prior compliance history 

when processing their new license applications, improving interagency enforcement efforts, automating licensing referrals, and 

expanding industry outreach. 

February 2002 

In this report, we focused on BIS’ plans for and progress toward 

modernizing its Export Control Automated Support System 

(ECASS) for dual-use export licensing. Four of our 13 recommendations remain open. These involve pressing project needs: 

identifying and securing adequate funding, determining system 

and security requirements, completing the target architecture, and 

selecting a location to house the system. 

8

All recommendations from our March 2000 review, Improvements Are Needed in 

Programs Designed to Protect Against the Transfer of Sensitive Technologies to 

Countries of Concern (IPE-12454), have been addressed. Open recommendations 

remain in the following reports: March 2001, Management of the Commerce Control List and Related Processes Should Be Improved (IPE-13744); February 2002, 

BXA Needs to Strengthen its ECASS Modernization Efforts to Ensure Long-Term 

Success of the Project (IPE-14270); March 2002, Interagency Review of Federal 

Automated Export Licensing Systems (D-2002-074); March 2003, Improvements 

Are Needed to Better Enforce Dual-Use Export Control Laws (IPE-15155); March 

2004, Deemed Export Controls May Not Stop the Transfer of Sensitive Technology 

to Foreign Nationals in the U.S. (IPE-16176). 

March 2005/Semiannual Report to Congress 13 
Bureau of Industry and Security 

March 2002 

In addition to the February report we issued on BIS, the interagency OIG review team issued a report that contained four recommendations for the bureau. Three of these remain open. They 

involve coordinating automation efforts among the various licensing agencies, establishing a common repository for all unclassified licensing data records, and tracking and reporting on licensing system development. 

March 2001 

Two of 14 recommendations remain open from our review of BIS 

policies and procedures for designing and administering the Commerce Control List: BIS should work with the National Security 

Council to assess and possibly revise commodity classification 

guidance and procedures, and provide State with copies of the final determinations on commodity classifications that it reviews. 

(Office of Inspections and Program Evaluations: IPE-17361) 

14 U.S. Department of Commerce/Office of Inspector General 
ECONOMIC DEVELOPMENT 

ADMINISTRATION 

T 

Audit Questions the Value of Utah 

he Grantee’s In-Kind Match 

Economic 

Development A Utah economic development organization received an EDA public works grant in Administration was established 2001 to help rural communities compete for technology-based jobs outsourced by by the Public Works and Economic businesses located anywhere in the world. Known as Utah Smart Sites, the initiaDevelopment Act of 1965 to generate tive seeks to bring skilled employment opportunities to the state’s rural resinew jobs, help retain existing jobs, and dents via high-speed Internet connections. The EDA grant was for the pur- stimulate commercial and industrial growth chase of computers and related equipment for Smart Site facilities where 

in economically distressed areas of the United residents would be trained and interface directly with clients to offer such 

States. EDA continues to fulfill this mission services as software development and testing, database management, web 

under the authority of the Economic Development site maintenance, graphics design, remote transcription, and data entry. Administration Reform Act of 1998, which The grant originally covered 12 sites but was expanded to cover 21 in 

introduced the concept of Comprehensive Economic 2004. Total estimated cost of the project was $1 million—with the 

Development Strategies, a local planning process federal share capped at $500,000 and the state providing a $500,000 designed to guide the economic growth of an area. match. When the project concluded in September 2004, final costs 

Based on these locally and regionally developed claimed were $1,000,397, and EDA had reimbursed the economic 

strategies, EDA works in partnership with state and development organization for the maximum federal share. local governments, regional economic development 


districts, public and private nonprofit organizations, Our audit originally ques­
 and Indian tribes to help distressed communities tioned $218,000 of the
 address problems associated with long-term economic state match—roughly half
 deterioration and recent, severe economic dislocations, the stated value of an in-


including recovery from the economic impact kind donation of educa­


of natural disasters, the closure of military tional products and user li­
 installations and other federal facilities, changes censes—because the recipi­
 in trade patterns, and the depletion of natural ent could not document how 

Source: www.smartsites.utah.gov/. 


resources. EDA provides eligible recipients the claimed value was deter-
 with technical assistance, as well as grants mined, which Smart Sites received the donations, and whether any sites 
 for public works and economic actually used them. Federal regulations require such documentation for in-
 development, planning, training and kind contributions that count toward a recipient’s cost-share to ensure amounts 


research, and economic adjustment. claimed are reasonable and necessary for performance of the project. During our 


audit fieldwork, we located some of the donated items at one site. Most of it remained unused, and the site administrator stated it probably never would be. 

We also noted a minor administrative deficiency in a memorandum of understanding (MOU) 

between the organization and one of the counties participating in the project: the MOU referenced 

only two county Smart Sites as having equipment purchased with grant funds when there were actually 

five sites. 

In response to our finding concerning the valuation, the recipient provided additional documentation that fully supported the $218,000 

value of donated products. As a result, we recommended that EDA ensure the grantee adequately documents its matching share in the 

future, as required by OMB Circular A-87. (Denver Regional Office of Audits: DEN-17065) 

March 2005/Semiannual Report to Congress 15 
Economic Development Administration 

Investigations 

RLF Administrator Sentenced for 

Program Fraud and Conspiracy 

On October 7, 2004, the last of four local officials convicted of 

conspiracy and fraud in connection with the administration of federal grant funds awarded by EDA and other agencies to a municipal economic development organization was sentenced in U.S. 

District Court for the District of Massachusetts to 41 months’ incarceration, followed by 3 years of supervised release. The official was also ordered to pay a total of $723,553 in restitution to the 

government, including $145,221 for losses sustained by an EDAfunded revolving loan fund, which amount will be returned to the 

agency. In addition, debarment proceedings have been initiated 

against the defendant and one of his co-conspirators to preclude 

them from receiving future federal contracts or financial assistance 

awards. The other two convicted officials have already been debarred—one for 10 years and the second for 3 years. (Alexandria 

Resident Office) 

16 U.S. Department of Commerce/Office of Inspector General 
ECONOMICS AND 

STATISTICS ADMINISTRATION 

T 

BEA, ESA, and Census Need Stronger
 

he Management Controls for Reimbursable
 

Economics Activities and Direct Sales to the Public 

and Statistics 

Administration analyzes OIG reports have identified problems with departmental reimbursable activities, such as 

economic developments, agencies’ failure to recoup full costs or consistently comply with federal requirements. 

formulates policy options, and In addition to their congressional appropriations, the Economics and Statistics Adproduces a major share of U.S. ministration (ESA) and its component bureaus—the Bureau of Economic Analygovernment economic and demographic sis (BEA) and Census—generate revenue by conducting work for other federal 

statistics. The Chief Economist monitors agencies under reimbursable agreements and by selling products and services to 

and analyzes economic developments and the public (transactions commonly referred to as “fee-funded activities”). In 

directs studies that have a bearing on the FY 2004, the three agencies earned a combined total of roughly $247 million 

formulation of economic policy. ESA has from reimbursable activities and $4.5 million in sales to the public. 

two principal agencies: 

We completed two audits of reimbursable and fee-funded activities during 

Bureau of the Census is the country’s this reporting period—one at ESA headquarters and BEA, the other at the
 

preeminent statistical collection and dissemination Census Bureau. Our findings are detailed below.
 

agency. It publishes a wide variety of statistical
 

data about the nation’s people and economy, ESA and BEA
 conducting approximately 200 annual surveys,
 

in addition to the decennial census of the U.S.
 ESA operates STAT-USA, a subscription service that offers customers population and the decennial census Internet access to business, economic, and trade statistics.9 , 10 STAT-USA of industry. assembles data from other government sources, prepares and distributes it 

to the public, Bureau of Economic Analysis prepares, and designs develops, and interprets the national information income and product accounts products. In FY
 (summarized by the gross domestic 2004, STAT-USA
 product), as well as aggregate generated $1.5 mil-
 measures of international, lion in sales. During the
 regional, and state economic same period, BEA gener­
 activity. ated about $182,000 from
 

sales of CD-ROMs containing
 

Regional Input-Output Modeling
 

System (RIMS) multipliers, which help
 

analyze the economic impacts of projects on
 

regions. In FY 2004, ESA earned $1.1 million from
 

reimbursable services provided to other government agen­
 

cies and BEA earned $500,000. Source: www.stat-usa.gov/. 

9 Public Law 103-317, 108 Stat. 1744 (August 26, 1994) provided that “the Secretary of Commerce is authorized to disseminate economic and statistical data products . . . 

and . . . charge fees necessary to recover the full costs incurred in their production.” 

10 OMB M-95-2 (the “Rivlin Memorandum”) was issued to provide agencies with guidance on reviewing their information dissemination practices for compliance with 

OMB Circular A-130. 

March 2005/Semiannual Report to Congress 17 
Economics and Statistics Administration 

Our audit sought to identify the agencies’ reimbursable and fee-funded 

services and products, and assess whether these activities are consistent with their statutory missions and comply with applicable laws 

and regulations. We also examined whether the agencies had appropriate and effective management controls over these activities. 

Reimbursable agreements. To recover the full costs of services 

provided to other federal agencies through reimbursable agreements, BEA and ESA bill customers for the direct costs incurred 

and use an overhead rate to recover indirect costs. Commerce requires that agencies review and document the charges they assess, 

but neither agency had reviewed or revised their overhead rates in 

3 years, and neither maintained documentation to justify the rates. 

In addition, one of the six BEA agreements we reviewed did not 

contain the proper authorization to begin work, which could have 

jeopardized the agency’s ability to recover its costs from the customer. We recommended that both BEA and ESA develop procedures to establish, document, review, and adjust overhead rates. In 

addition, BEA needs to ensure that it does not begin work for another agency until an interagency agreement is properly executed. 

Fee-funded activities. BEA establishes the price of RIMS products on the basis of its labor costs (e.g., RIMS staff hourly salaries, 

leave and benefits, customer service, preparation of distribution package) and overhead costs (management, administration, and space). 

BEA had initially estimated the cost of producing a RIMS CD-ROM 

for FY 2005 at $283—which represented $160 for direct labor and 

$123 for overhead (43 percent of the total price). We could not determine how BEA arrived at this overhead amount or if it was reasonable. In response to our audit, BEA agreed that overhead costs 

need closer scrutiny, reanalyzed its costs, and found that the FY 

2004 CD cost was still appropriate and should be used in FY 2005. 

For STAT-USA, ESA must recover the costs of labor, equipment, 

supplies, rent, utilities, and overhead associated with operating 

the service, but could not provide us with documentation of how it 

calculated these costs or the associated subscription fees. 

Agency Response 

The Under Secretary of Economic Affairs accepted our recommendations and noted that some corrective actions had already 

been taken. For example, both BEA and ESA have developed new 

procedures to establish, document, and apply overhead rates 

charged to customers in reimbursable agreements, and the agency 

has recalculated these rates with the latest data. (Financial Statements and Accountability Division: FSD-16824-5-0001) 

Census Bureau 

During FY 2004, the Census Bureau earned total revenue of approximately $246 million from reimbursable agreements with government agencies and roughly $2.9 million from product sales to 

the public. 

Our audit showed that the 

bureau’s reimbursable ac- Census 

tivity and product sales are Mission Statement 

consistent with its mission. 

Census fully documents its The Census Bureau serves 

cost estimates for reim- as the leading source of qualbursable projects and re- ity data about the nation’s 

covers all costs for the people and economy. We 

work it performs. honor privacy, protect confidentiality, share our expertise 

However, 13 of the 43 re- globally, and conduct our 

imbursable agreements work openly. 

we reviewed, which had 

estimated costs of about 

$132 million, either were not signed by an authorized official prior 

to the initiation of work or did not have an accompanying temporary work agreement in place before any work was done. Census 

issues temporary agreements to authorize work within 30 days of 

receiving a letter of intent from the federal customer. The customer 

then has up to 90 days to sign a formal agreement. For six projects 

that had temporary agreements, Census failed to obtain a signed 

formal agreement from the customer within 90 days and thus allowed the temporary agreements to remain in effect beyond the allotted time period. 

Census officials informed us that they have met with major federal customers to discuss the timeliness requirements for signing 

interagency agreements, but we noted instances in which temporary agreements were still being signed more than 30 days after 

receipt of letters of intent. 

Legal review policy unclear. The Census Bureau’s Policies and 

Procedures Manual states that all reimbursable agreements require 

legal review “unless specifically exempted,” but does not specify 

what exemptions apply. None of the 43 reimbursable agreements 

in our audit sample had received legal review. Bureau officials 

informed us that agreements for certain special projects are exempt from legal review. However, these exceptions were not included in the Policies and Procedures Manual. We recommended 

that clear guidance as to which reimbursable agreements require 

legal review be included in the Policies and Procedures Manual. 

Database ineffective tool for monitoring and documentation. 

Census’s Acquisition Division maintains a database of reimbursable agreements but the information it contains is incomplete and 

its usefulness for monitoring reimbursable activity is limited. 

In addition, the bureau does not maintain all required documentation pertaining to agreements in a centrally located official file 

and has not assigned responsibility for maintaining such files to 

any specific division. 

Readily accessible and complete documentation is essential to 

effectively monitor reimbursable work. The director of the Cen18 U.S. Department of Commerce/Office of Inspector General 
Economics and Statistics Administration 

sus Bureau should ensure that official reimbursable agreement files 

containing all required documentation are maintained. 

Agency Response 

Census officials agreed that stronger management controls for reimbursable agreements are warranted, particularly in the areas of 

policy, monitoring, and official files. They provided a plan of action to address issues such as late executions of interagency agreements and have already corrected some problems (e.g., specification of which reimbursable agreements require legal clearance). 

(Financial Statements and Accountability Division: FSD-16824­

5-0002) 

Audit Questions $8.5 Million 

Billed Under Census Contract 

for IT Services 

In 1999 the Census Bureau awarded a Virginia IT services company an indefinite delivery/indefinite quantity contract to provide 

up to $150 million worth of information technology services to 

the bureau and all departmental operating units. The 1-year contract was implemented through a series of task orders and included 

the option of 12-month extensions through April 2004. 

During this semiannual period, we audited 3 of the 32 task orders awarded under the contract to determine whether costs billed 

by the firm were reasonable, allowable, and allocable under contract terms and conditions and federal regulations. After a series 

of amendments, estimated total costs for the 3 orders were $17 

million. 

In all three audits, we found that the firm had failed to comply 

with numerous contract and federal requirements, which caused 

us to question slightly more than $8.5 million in direct labor and 

reimbursable costs billed under the task orders. We recommended 

that Census disallow and seek recovery of this entire amount, and 

take various other actions to rectify the problems that permitted 

the noncompliance and resulting unallowable billings. 

Agency Response 

The audit reports for the three task orders were provided to the 

agency incrementally. The findings and recommendations identified in the first report were common to all three. Census provided 

an action plan in January 2005 that included specific steps to address each of the findings. (Denver Regional Office of Audits: DEN16724-5-0001, 0002, and 0003) 

Investigations 

Assignment of Fictitious Census 

Contract Leads to Conspiracy 

Charge 

On February 2, 2005, a Louisiana businessman was charged in 

U.S. District Court for the Eastern District of Louisiana with conspiracy to commit bank fraud, based on evidence developed by a 

joint OIG/FBI investigation. To obtain a $6 million loan from a 

New Orleans bank, the defendant executed a security agreement 

that purported to pledge as collateral his company’s interest in the 

proceeds of an $18.5 million contract with the Census Bureau. 

Our investigation disclosed, however, that documents submitted 

to the bank to support the assignment were forged, and that no 

such contract actually existed. If convicted on the felony charge, 

the defendant could face a substantial fine and up to 5 years’ imprisonment. The trial is scheduled for April 2005. (Alexandria 

Resident Office) 

Former Census Employee 

Sentenced for Theft of 

Government Funds 

In our September 2004 Semiannual Report (page 48), we reported 

the felony theft conviction of a Census employee, which resulted 

from a joint investigation with the U.S. Department of Agriculture OIG. The investigation found that the defendant had falsely 

reported the amount of income she received as a Census employee 

in order to qualify for and receive food stamps and child care 

benefits from USDA. On December 15, 2004, she was sentenced 

in U.S. District Court for the District of Maryland to 3 years’ supervised probation—including 6 months’ home detention with 

electronic monitoring—and 100 hours of community service, and 

was ordered to pay $39,446 in restitution. Prior to her sentencing, 

the defendant resigned from her position at Census. (Washington 

Field Office) 

Census Contractor Arrested for 

Theft from Government 

On March 1, 2005, OIG agents, working with local police, arrested a Census Bureau vendor in Elgin, Illinois, on state charges 

that he stole approximately $20,000 from the bureau over a period 

of approximately 8 months. Our investigation found that between 

January and August 2004, the vendor had billed more than 20 

fraudulent charges to a government purchase card account using 

online software. The theft went undetected for a period of time 

because the purchase card was routinely used to pay the vendor 

March 2005/Semiannual Report to Congress 19 
Economics and Statistics Administration 

for legitimate services rendered to the bureau, so similar charges 

were initially overlooked when monthly statements were reviewed. 

The fraudulent charges were identified as a result of routine random audits conducted by the agency and were immediately reported to OIG. 

At the time of his arrest, the defendant was charged with two counts 

of unauthorized use of a credit card in violation of state criminal 

statutes. Further proceedings are pending. 

The agency informed us that it has taken steps to reinforce the 

need for monthly reconciliation of billing information. (Alexandria Resident Office) 

20 U.S. Department of Commerce/Office of Inspector General 
INTERNATIONAL TRADE 

ADMINISTRATION 

T 

ITA’s Import Administration Can Further 

he Improve Its Antidumping Administrative 

International Review Program 

Trade Administration 

is responsible for trade promotion During this period, we assessed the Import Administration’s administrative review 

and policy issues associated with most process for antidumping11 duty orders to determine whether the agency is meet- nonagricultural goods and services. ITA ing its statutory requirements for completing these reviews; has sufficient 

works with the Office of the U.S. Trade policies, procedures, and guidance in place; and has adequate tools and Representative to coordinate U.S. trade policy. controls to manage administrative reviews. Our findings are as follows: 

ITA has four principal units: 

Import Administration meets most statutory Market Access and Compliance develops and deadlines, but needs stronger management implements international economic policies of a bilat- and administrative controls to ensure 

eral, multilateral, or regional nature. Its main objectives continued compliance

are to obtain market access for American firms and 

workers and to ensure full compliance by foreign nations Import Administration operates under specific time frames for 

with trade agreements signed with the United States. completing annual antidumping administrative reviews. Title 19, 

Manufacturing and Services undertakes industry trade analy- Section 1675 of the U.S. Code requires the agency to make a 

sis, shapes U.S. trade policy, participates in trade negotiations, preliminary determination “within 245 days after the last day of 

organizes trade capacity-building programs, and evaluates the the month in which occurs the anniversary of the date of publiimpact of domestic and international economic and regulatory cation of the order or suspension agreement for which the repolicies on U.S. manufacturers and service industries. view . . . is requested.” 

Import Administration defends American industry against A 1993 OIG review found that 32 percent of the agency’s admininjurious and unfair trade practices by administering the istrative reviews were late, but our recent survey found that the 

antidumping and countervailing duty laws of the United agency was meeting its deadlines for reviewing antidumping cases 

States and enforcing other trade laws and agreements most of the time. The agency extends statutory dates if deadlines 

negotiated to address such trade practices. fall on weekends. According to agency management, deferring weekend deadlines for case determinations to the next business day has 

U.S. Commercial Service promotes the export of been an accepted practice for many years. But this is not an official 

U.S. products and helps small and medium- policy. The agency’s chief counsel’s office acknowledges that under a 

sized businesses market their goods and strict interpretation of the statute, Import Administration does not have the 

services abroad. It has 100 domestic flexibility to extend weekend deadlines. 

offices and more than 150 overseas 

posts in 84 countries. Import Administration has multiple management and administrative controls to 

help it meet deadlines, such as the Case Management Database—the agency’s primary system for calculating statutory deadlines and tracking progress toward meeting 

them—and managers’ weekly status reports, but these tools could be strengthened. The Case 

Management Database, for example, contains some erroneous information. In addition, the database does not record the actual dates of signature for determinations. Import Administration used 

information generated by the database to report in the Department’s FY 2004 Annual Performance Plan that 

it met case deadlines 100 percent of the time in FY 2002. But the database does not reconcile statutory deadline dates or target dates 

11The U.S. antidumping statute is designed to prevent foreign firms from selling a good in the United States at prices below those at which the good is sold in their home 

market, or in some limited instances below the cost of production. 

March 2005/Semiannual Report to Congress 21 
International Trade Administration 

against the actual dates that determinations are signed, so it is not 

really providing reliable information for the agency to use to determine whether it always completes cases on time. If Import Administration wants to continue using the database to generate performance information, the system must provide a report based on 

the determination’s actual rather than target signature dates. 

Policies, procedures, and standards need 

improvement 

Import Administration does not have adequate written guidance 

or an operations handbook that gives systematic instructions for 

conducting administrative reviews, defines staff roles and responsibilities in the process, and details agency practices. We could 

not find any document containing the necessary information in a 

concise and easy-to-use format. In addition, verification reports, 

Apr 05, 2005 

Separate Rates and Combination Rates in Antidumping Investigations involving Non-Market Economy Countries 

Announcement of Change in Practice 

Policy Bulletin 05.1 

Mar 25, 2005 

Superalloy Degassed Chromium from Japan 

Initiation of Antidumping Investigation 

Factsheet 

Mar 25, 2005 

Ishar UAE Scope Ruling on Whether Stainless Steel 

Bar is Subject to the Scope of the Antidumping and 

Countervailing Duty Orders on Stainless Steel Wire 

Rod from Subject Countries 

Final Scope Ruling (signed: February 7, 2005) 

Mar 16, 2005 

Bottle-Grade Polyethylene Terephthalate Resin 

from India, Indonesia, Taiwan, and Thailand 

Final Antidumping and Countervailing Duty Determinations 

Factsheet 

Mar 11, 2005 

Steel Import Monitoring and Analysis System 

Interim Final Rule 

FR Notice Factsheet 

which confirm IA’s findings in an antidumping review, were markedly different in content and format. This lack of standardization 

produces reports of varying quality. 

Though Import Administration does have an antidumping manual, 

it does not reflect current review practices. Published in 1998, the 

manual has been outdated by several policy bulletins and court 

decisions issued subsequently. The agency should develop an internal operations handbook, and include in it a standard template 

for the content and format of verification reports. IA also should 

update its antidumping manual to reflect current review practices. 

Management of official files needs attention 

Import Administration is required to keep official files for 20 years 

after a case is closed and to maintain the public version for 5 years 

after case closure.12 Files for cases challenged in court must be 

kept indefinitely. 

IA’s official case files are inadequately maintained. Our review of 

a sample of official case files, which are stored primarily in the 

Department’s Central Records Unit, found that many were incomplete—devoid of Federal Register notices, decision memoranda, 

and other required documentation. In addition, most electronic 

media files (e.g., data sets and margin calculations), which are 

considered part of the official case documentation, were not maintained in the required location. 

In addition, official files in the Central Records Unit at Commerce 

headquarters are vulnerable to fire because the unit does not have 

an automatic fire suppression system. 

The agency hopes to resolve these issues and improve its compliance with records management requirements with the implementation of an electronic documents management system recently 

purchased by ITA. Import Administration estimates that phase I of 

the system will be operational by late 2005. 

Computer support needs restructuring 

In August 2004, Import Administration completed a reorganization of its antidumping and countervailing duty operations, but 

left management of computer support staff unchanged. Previously, 

each of the three Deputy Assistant Secretaries (DASs) for Operations had a two-person computer support team that trained analysts to use statistical analysis software for calculating dumping 

margins. Each team reported to a different office director who in 

turn reported to one of the three Deputy Assistant Secretaries. Under 

the reorganization, the office directors now report to only one 

Deputy Assistant Secretary, but the three computer support staff 

teams are still separate. Having the computer support staff report 

12Based on ITA’s records retention policy and National Archives and Records Administration guidelines. 

The Import Administration’s antidumping and countervailing duty decisions 

span a wide range of issues of great importance to American businesses. 

Source: http://ia.ita.doc.gov/ia-highlights-and-news.html. 

22 U.S. Department of Commerce/Office of Inspector General 
to one manager could help improve consistency in service and 

support and facilitate the best allocation of resources. 

Analyst training program should be improved 

Import Administration offers three training modules for new analysts (new analyst training, verification, and statistical analysis 

software training), but no formal training for existing analysts. New 

analysts say they are overwhelmed by the amount of information 

given in the training classes. More experienced analysts complain 

about a lack of continuing career development. Both situations 

may negatively impact the agency’s operations. Import Administration should reassess its training program to ensure that it meets 

the needs of new and existing analysts, particularly in light of the 

large number of vacancies (87) it anticipated filling at the time of 

our review. 

Agency Response 

Import Administration is taking steps to address the report’s recommendations, such as publicly clarifying its practice of rolling 

to the next business day statutory deadlines that fall on weekends 

International Trade Administration 

or legal holidays, establishing a standard process for vetting and 

resolving cases in a timely manner, drafting instructions to update 

the case management database, and updating the Antidumping 

Manual to reflect changes in IA practice. (Office of Inspections 

and Program Evaluations: IPE-16952) 

Investigations 

Multiple Arrests in Visa Fraud 

Investigation 

In February 2004, the Diplomatic Security Service (DSS), U.S. 

Department of State, requested that OIG join an ongoing investigation, which had disclosed the possible involvement of an ITA 

employee in visa fraud. During the first week of March 2005, OIG 

agents participated along with personnel from DSS and the Bureau of Immigration and Customs Enforcement in the arrest of 

four foreign nationals, who will be held as material witnesses in 

the case. (Seattle Resident Office) 

March 2005/Semiannual Report to Congress 23 
24 U.S. Department of Commerce/Office of Inspector General 
NATIONAL OCEANIC 

AND ATMOSPHERIC 

ADMINISTRATION 

Recommendations in Consultant Study Lack 

The Support for Changes at NOAA 

National 

Oceanic and In September 2003, NOAA contracted with the management consulting firm of Booz 

Atmospheric Administration Allen Hamilton, Inc., for a comprehensive analysis of its finance and administrastudies climate and global change; tive services. The purpose of the study was to evaluate the performance of these 

ensures the protection of coastal oceans and functions, recommend cost-effective service improvements, and develop a 

the management of marine resources; provides plan for implementing the recommended changes. We reviewed how NOAA 

weather services; and manages worldwide is using the study’s results and whether its findings, assumptions, conenvironmental data. NOAA does this through the clusions, and recommendations are adequately supported. Our audit did 

following organizations: not assess whether the recommended functional management strucNational Weather Service reports the weather of ture was an appropriate choice for NOAA. 

the United States and provides weather forecasts 

and warnings to the general public. Validity of study’s conclusions about costs, 

savings, staffing, and organizational structure 

National Ocean Service issues nautical charts; performs could not be verified 

geodetic surveys; conducts research; and develops policies 

on ocean mining and energy. Although Booz Allen’s reports indicated extensive data gathering and analyses, we concluded that the study’s assumptions, findNational Marine Fisheries Service conducts a program ings, and recommendations lacked support and should not serve 

of management, research, and services related to the as the sole justification for specific action by NOAA. 

protection and rational use of living marine resources. 

The Booz Allen consultants who prepared the reports in the study National Environmental Satellite, Data, and advised us that in their opinion the reports contained all the eviInformation Service observes the environment by dence necessary to understand the basis for their recommendations, operating a national satellite system. but we did not find that to be the case. 

NOAA Research (Office of Oceanic and Atmospheric 

Research) conducts research related to the oceans We were unable, for example, to see how information reportedly gathered in Booz Allen’s interviews with NOAA and departmental offi­ and inland waters, the lower and upper atmosphere, cials supported the reports’ findings and conclusions. Likewise, we could the space environment, and the Earth. not assess the validity of estimated costs and savings Booz Allen identiNOAA Marine and Aviation Operations fied because these reports lacked sufficient analysis supporting the formuoperates NOAA’s ships and aircraft and lation of those amounts. We could not reconcile the key cost and staffing figprovides NOAA programs with trained ures contained in the reports with other verifiable data, such as NOAA’s audited 

technical and management accounting records. In addition, we were unable to analyze Booz Allen’s adjustpersonnel from the nation’s ments to the activity based costing data produced by NOAA or to validate the producseventh uniformed tivity gains Booz Allen assumed NOAA could achieve. Similarly, we could not assess the 

service. validity of Booz Allen’s decision to recommend a specific organizational structure because the 

reports did not contain sufficient analysis supporting that decision or indicating why the structure 

chosen suited NOAA better than any other option identified. 

Our concerns persisted even after meeting with the Booz Allen consultants who prepared the reports and discussing the issues that 

troubled us. As a result, we concluded that neither the findings nor recommendations contained in the Booz Allen reports should serve as 

the sole justification for action by NOAA. 

March 2005/Semiannual Report to Congress 25 
National Oceanic and Atmospheric Administration 

Agency Response 

NOAA suggested that the Booz Allen study played a limited role 

in its decisions and subsequent actions to change the manner in 

which it delivers finance and administrative services, noting that it 

considered findings and recommendations from previous studies 

in making that decision. This response was consistent with our 

conclusion that the Booz Allen reports should not serve as the sole 

basis for agency action. (Denver Regional Office of Audits: DEN16498) 

NESDIS Needs to Follow 

Latest Guidance for Acquiring 

Satellites Via Memorandums 

of Agreement 

As a follow-up to our September 2000 series of reviews on the 

Department’s implementation and oversight of interagency agreements, we audited two memorandums of agreement (MOAs) used 

by NOAA’s National Environmental Satellite, Data, and Information Service (NESDIS) to acquire environmental satellites through 

the National Aeronautics and Space Administration (NASA). 

Our findings are as follows: 

New processes and procedures exist for 

appropriately preparing, reviewing, and 

clearing interagency agreements 

Source: www.nesdis.noaa.gov. 

The Department recently issued 

the Interim Interagency and 

Other Special Agreements Handbook to provide guidance for the 

use, management, and oversight 

of interagency agreements. 

NESDIS issued its own manual 

for interagency agreements, Review and Clearance Procedures 

for Agreements, on October 31, 

2002. The NESDIS manual, 

coupled with the requirements of 

the departmental handbook and 

the specific authorizing legislation, provides sufficient guidance 

for preparing, reviewing, and 

clearing interagency agreements. 

NESDIS entered into agreements without 

justifying its selection of NASA as the 

procurement source 

The agreements originally cited the Department’s joint project 

authority. However, the Department’s Office of General Counsel 

approved the agreements under the authority of the Economy Act 

of 1932, as amended. This act ensures that agencies do not circumvent the procedures, time, and cost of open competition, and 

thus NESDIS should therefore have conducted market research to 

show that NASA was the best choice for the work. NESDIS did 

not conduct any formal analysis showing that NASA’s acquisition 

services for the satellites were more convenient or economical than 

those of any other contractor. We also found that the agreements 

for Polar Operational Environmental Satellites (POES) and Geostationary Operational Environmental Satellites (GOES) did not 

include budget or management information. 

We recommended that the Deputy Under Secretary for Oceans 

and Atmosphere ensure proper legal authority is cited in the POES 

and GOES memorandums of understanding, as well as in future 

agreements; comply with the Economy Act; and update the POES 

and GOES agreements to follow the Department’s Interim Interagency and Other Special Agreements Handbook (May 2004) and 

NESDIS’ Review and Clearance Procedures for Agreements. 

Agency Response 

NOAA’s chief administrative officer agreed with our recommendations. He noted that NOAA will ensure that current agreements 

are amended to comply with past and present regulations and that 

future agreements comply with applicable laws, regulations, and 

policies. (Office of Audits: BSD-16927) 

Pacific Coastal Salmon 

Recovery Fund 

As detailed in our September 2004 Semiannual Report (pages 8 

and 31-32), OIG is auditing a series of projects operating under 

the Pacific Coastal Salmon Recovery Fund—the multimillion dollar 

federal grant program administered by NOAA to enhance salmon 

recovery in Alaska, California, Idaho, Oregon, and Washington. 

Since the program’s inception in FY 2000, these states and select 

Indian tribes have received some $436 million to support local 

salmon conservation efforts. One Washington grantee—a Native 

American commission—is using a 5-year, $27.3 million recovery 

fund award to finance salmon projects operated by its 20 member 

tribes. 

26 U.S. Department of Commerce/Office of Inspector General 
Tribal employees place sandbags in a tributary to force smolts into a channel that moves them into a box-and-screen trap for counting. Smolts are 

juvenile salmon that migrate from fresh water to estuaries where fresh and 

salt water mix so they can adjust before moving out to sea as adults. 

Source: OIG. 

We reported on our interim audits of projects conducted by two 

tribes in the last semiannual. During this reporting period, we audited the projects of three additional tribes. Our findings are detailed below. 

Recovery of Nearly $1 Million in 

Administrative Costs From Two 

Washington Tribes Recommended 

One tribe submitted costs to the commission of $540,902 during 

our audit period (April 2000 through September 2003). We questioned this entire amount because the costs invoiced to the commission were for expenses incurred on projects that had other 

sources of funding and had already been billed against those 

awards. In making its claim to the commission, the tribe simply 

transferred costs from the other projects to the commission 

subgrant. In addition, the tribe could not show that claimed costs 

for labor, fringe benefits, and other direct expenses were incurred 

solely in support of subgrant activities, and failed to submit required progress reports. 

The second tribe submitted costs of $696,269 during our audit 

period (April 2000 through September 2003). We questioned 

$441,250 claimed for labor and related fringe benefits and indiNational Oceanic and Atmospheric Administration 

rect costs because the tribe failed to adhere to federal cost principles and uniform administrative requirements. This tribe also 

did not submit the required semiannual progress reports. (Seattle 

Regional Office of Audits: STL-16657-2 and -4) 

Northwest Washington Salmon 

Recovery Project on Track to Meet 

Performance Goals 

Our interim audit of a third subgrant found that the tribe is making 

sufficient progress toward promoting multispecies salmon recovery throughout its targeted 120-mile fishing area that extends south 

from the Canadian border. We concluded that the tribe is on track 

to meet the objectives of the NOAA grant by the award’s expiration date. 

A smolt trap is used to quantify how many fish are moving through a 

water system. There are several types, including screw traps, which are 

used to catch fish moving downstream in big rivers and streams. Water 

turns the barrel of rotary screw traps (above), funneling smolts into a box 

to be counted and then released. 

Source: OIG. 

We accepted the entire $902,213 in costs invoiced to the commission during our audit period (April 2000 through September 2003), 

and found that the tribe had administered the project in accordance 

with award terms and conditions, and federal cost principles and 

administrative requirements. (Seattle Regional Office of Audits: 

STL-16657-6) 

March 2005/Semiannual Report to Congress 27 

NATIONAL 

TELECOMMUNICATIONS AND 

INFORMATION ADMINISTRATION 

Sound Grant Administration Noted in New 

The 

Hampshire Television Project 

National In September 2002, NTIA awarded a $1.2 million Public Telecommunications Facilities Program 

Telecommunications and grant to a university-operated public television station in New Hampshire to convert three of its 

Information Administration eight component stations from analog to digital transmission. The 1-year grant required matchserves through the Secretary of ing funds of $2.1 million, for total project costs of $3.3 million. The stations serve a comCommerce as the executive bined population of 1.2 million. At the expiration of the grant period, the recipient had 

branch’s principal advisor to the incurred total project costs of $3,425,666. 

President on domestic and 

international telecommunications and We audited the award to determine whether the recipient had complied with federal 

information policy issues. NTIA laws and regulations and NTIA grant terms and conditions. We found only one minor 

manages the federal use of the instance of noncompliance—a piece of equipment purchased with grant funds was not 

electromagnetic spectrum, provides labeled, as required, with the NTIA grant number. The recipient has corrected this 

grants for national information and public minor instance of noncompliance by labeling the piece of equipment. (Atlanta Rebroadcasting infrastructure projects, and gional Office of Audits: ATL-16981) 

performs telecommunications research 

and engineering. It works to enhance 

citizens’ access to cable television, 

phone, and other telecommunications 

services; and educates state and local 

governments and other entities on 

ways to use information 

technology and 

telecommunications 

more effectively. 

March 2005/Semiannual Report to Congress 29 

TECHNOLOGY 

ADMINISTRATION 

T 

Millions of Dollars Questioned in Joint
 

he Venture Project
 

Technology 

Administration serves A publicly traded producer of software for health care providers received a $9.2 milthe needs of technology-based lion ATP award to administer a joint venture formed to develop technologies for 

industry, advocates federal actions sharing medical data across clinical information systems. The 3-year project, 

and policies to speed the transfer of which commenced in December 2001, required a recipient match of $9.6 miltechnology from the laboratory to the lion. In February 2004, NIST suspended payment under the cooperative agreemarketplace, and removes barriers for ment because of suspected noncompliance with award terms and condicommercializing new technologies. It includes tions, and requested OIG assistance. The suspension is now lifted. 

three major organizations: 

We audited costs claimed by the administrator for the period from 

Office of Technology Policy works in partnership December 2001 through June 2004—which totaled $7,401,589—and 

with the private sector to develop and advocate national questioned millions of this amount, as follows: 

policies and initiatives that use technology to build 

America’s economic strength, promote the creation of Improper basis for software valuation. Among other things, we 

high-wage jobs, and bring about improvements in our found that in 2002, the administrator claimed to have contributed 

quality of life. software and allocated indirect costs on the claimed value of the 

software. It therefore received federal reimbursement, though the 

National Institute of Standards and Technology actual software transfer did not occur until 2004. Federal regulapromotes U.S. economic growth by working to develop tions require that product valuations be based on prices at which 

and apply technology, measurements, and standards. NIST comparable goods sold in the 12 months prior to the transfer. 

manages four programs: NIST Research Laboratories, Because the administrator’s valuation was based on comparable 

the Advanced Technology Program, the Manufacturing sales from 3 years earlier, we questioned the amount of the claimed 

Extension Partnership program, and the Baldrige contribution.
 

National Quality Program.
 

Imputed interest on advance payment. We also found that the 

National Technical Information Service is a reimbursement for a transfer that had not yet occurred was, in effect, 

self-supporting agency that promotes the nation’s an advance payment. Federal regulations require grant recipients to 

economic growth and job creation by providing deposit advanced federal funds in interest-bearing accounts and to remit 

access to information that stimulates earned interest to the agency annually. The administrator did not maintain 

innovation and discovery. NTIS accom- the funds in an interest-bearing account, so we imputed interest owed to 

plishes this mission through information NIST. 

collection and dissemination to the 

public and through information and Questionable accounting practices. The administrator inappropriately applied 

production services to federal the award’s indirect cost rate to the software valuation. Federal regulations define 

agencies. indirect costs as those incurred in the normal conduct of business, such as overhead expenses related to supporting direct labor and production. The software valuation was unrelated to direct production or other reasonable overhead expense. 

Inappropriate personnel and related indirect costs. Contrary to its own policies and federal cost principles, the administrator charged NIST for overtime and vacation pay for employees working on other projects, gave staff 

bonuses without NIST approval, and billed estimated rather than actual labor hours, all of which caused us to question $159,925 in 

personnel and related costs. 

March 2005/Semiannual Report to Congress 31
Technology Administration 

The company disagreed with our findings but provided no documentation to change our conclusions. We recommended that NIST 

disallow millions in questioned costs and recover the federal share, 

which includes imputed interest. (Atlanta Regional Office of Audits: ATL-16872) 

NIST’s Advanced Technology Program 

As part of its efforts to spur technological development, NIST 

administers the Advanced Technology Program (ATP) to provide financial assistance through cooperative agreements, 

with the goal of transferring cutting-edge technology to industrial uses. Between 1990 and September 2004, ATP 

awarded $2.3 billion in funding to companies to develop 

promising, high-risk technologies. Industry has matched this 

funding with $2.3 billion in cost-sharing. 

Source: www.atp.nist.gov/eao/statistics/. 

Questioned Costs of $294,495 

in Audit of Michigan ATP 

Grantee 

In September 2003, NIST awarded a 3-year ATP cooperative agreement to a Michigan engineering firm to develop enhanced manufacturing assembly processes primarily for the automotive industry. Total estimated costs of the award are $2,117,299, with the 

federal share not to exceed $1,987,927, or 94 percent of allowable 

costs. During the project’s first 9 months (October 2003 through 

June 2004), the firm reported costs of $490,065 and received reimbursement of $389,478. 

Our interim audit of this 9-month period questioned $294,495 of 

the costs claimed: the recipient had received $193,907 of this 

amount for costs billed by a subcontractor with which it had no 

written contract, and the remaining $100,588 for unallowable 

equipment purchases. In addition, the grantee had 

•	 billed NIST for costs not yet invoiced, thus accumulating 

grant funds before they were needed; 

• 	failed to develop written standards for employee conduct; 

and 

•	 used grant funds to give an employee a large pay raise, 

which may have reduced the amount available to cover 

agreed-upon costs or labor requirements. 

We recommended that NIST disallow the total amount questioned, 

recover excess federal funds of $221,971, and direct the recipient 

to establish the required written standards for employee conduct. 

We also advised NIST to take appropriate action should the salary 

increase adversely affect the grantee’s ability to achieve the award’s 

stated goals. (Denver Regional Office of Audits: DEN-16926) 

Audit Confirms Cost-Share 

Requirements Met by 

ATP Recipient 

A Maryland engineering firm received an ATP award in September 2003 to mass produce a foil adhesive for bonding dissimilar 

materials, such as metal and ceramic, without the use of heat—a 

process with potentially wide application and benefit to the defense and aerospace industries. Total estimated costs of the 2-year 

project are $2.3 million, with the federal share for the first year 

not to exceed $1,186,884, or 84 percent of allowable direct costs. 

The firm claimed first-year project costs totaling $806,140 and 

received $615,000 in federal reimbursement. 

We conducted an interim financial audit of costs claimed and reimbursed for the project’s initial 11 months (October 2003 through 

August 2004), and found that the recipient had covered less than 

half of its share of direct costs for that period (7.24 percent versus 

the required 15.95 percent). In response to our draft report, the 

firm provided documentation demonstrating that it had balanced 

the excess federal payments it had received during these 11 months 

by absorbing all project costs incurred during the month of September 2004 ($143,159). NIST confirmed that it had not reimbursed any of these costs. As a result, the recipient had actually 

exceeded its first-year cost-share requirement, having covered 

23.71 percent of direct costs. We therefore considered the matter 

resolved. (Denver Regional Office of Audits: DEN-16983) 

32 U.S. Department of Commerce/Office of Inspector General 
Technology Administration 

Minor Noncompliance 

Found in Audit of California 

Joint Venture 

We audited the costs claimed by a member of a two-company joint 

venture that received an ATP cooperative agreement to develop 

high-speed optical switches for the telecommunications industry. 

For the joint venture, total estimated costs of the 4-year project 

(October 2003 through September 2007) are $7.0 million, with 

the federal share capped at roughly $3.5 million, or 50 percent. 

The member’s share of the total estimated costs is $4 million, with 

federal reimbursement limited to $999,505, or about 25 percent. 

For the award’s first year, the federal cost-share to the member 

firm was capped at $231,602, or 22.47 percent. 

During the project’s first 6 months, the member firm billed the 

joint venture administrator for costs of $352,080 and received 

$30,961 in federal disbursements. We questioned $3,132 of these 

claimed costs, consisting of $1,592 in non-ATP payroll expenses 

and fringe benefits, and $1,540 in related indirect costs. During 

the same time frame, the firm had not claimed eligible project 

expenditures of $2,383. We therefore credited the firm for this 

amount, which reduced questioned costs to $749. 

Our audit also revealed that the member’s accounting system did 

not comply with federal cost principles in that it did not have written procedures for determining the reasonableness and allowability 

of costs. 

We recommended that NIST disallow the questioned amount of 

$749, recover $168 in excess federal disbursements, and direct the 

joint venture member to develop the required written financial 

management procedures. (Denver Regional Office of Audits: DEN16869) 

Audit of NTIS’ FY 2004 

Financial Statements 

NTIS received an unqualified opinion on its FY 2004 financial 

statements, and the independent auditors noted the agency has established an internal control structure that supports reporting of 

reliable financial and performance information. NTIS’ financial 

statements showed no material weaknesses in internal control and 

fully complied with related financial management laws and regulations. 

Assessment of IT Controls 

The review of IT controls against the six criteria outlined in GAO’s 

Federal Information System Controls Audit Manual13 noted two 

open findings remaining from FY 2003. The independent auditors 

identified one new finding and made four recommendations in the 

areas of security planning and management, access control, and 

service continuity. (Financial Statements and Accountability Division: FSD-16698 and 16699) 

Audits Unresolved for 

More than 6 Months 

Massachusetts MEP 

Our September 2004 Semiannual Report (page 37) detailed an audit 

of an MEP cooperative agreement as being unresolved for more 

than 6 months. Our audit had recommended that NIST disallow 

questioned costs of $8,177,606, recover the federal share of 

$1,599,349, and require the recipient to implement improvements 

to its financial reporting system. In its audit resolution proposal, 

NIST disallowed $715,097 and reinstated $7,462,509 in costs questioned in the audit report. In July 2004, after detailed analyses of 

NIST’s audit resolution proposal and other documents provided 

by NIST and the recipient, we advised NIST that we concurred 

with its decision to disallow $715,097, but did not concur with 

reinstatement of the remaining $7,462,509. We continue to work 

with NIST to resolve this report. 

Computer Aided Surgery, Inc., 

New York 

An OIG audit of this NIST cooperative agreement (see September 

2004 issue, page 35, ATL-16095) questioned costs totaling 

$547,426 in inappropriately charged rent, utilities, and certain salary, fringe benefit, and other expenses, because these costs were 

unallowable, in excess of budgetary limits, or incorrectly categorized. We have postponed NIST’s submission of an audit resolution proposal. 

13 The six criteria are entitywide security program planning and management, access controls, application software development and change control, system software, segregation of duties, and service continuity. 

March 2005/Semiannual Report to Congress 33 
34 U.S. Department of Commerce/Office of Inspector General 
UNITED STATES PATENT AND 

TRADEMARK OFFICE 

Audit of USPTO’S FY 2004 Financial Statements 

TThe Fiscal Year 2004 marked the 12th consecutive year that the U.S. Patent and Trademark Office’s annual 

United audit received an unqualified opinion. The independent auditors found the agency’s financial stateStates Patent ments had no material weaknesses and complied with all applicable laws and regulations. 

and Trademark Office 

administers the nation’s Assessment of IT Controls 

patent and trademark laws. 

Patents are granted and The review of IT controls against the six criteria outlined in FISCAM found that USPTO 

trademarks registered under a had fully resolved five of the seven weaknesses related to security controls that were idensystem intended to provide tified in the FY 2003 audit. Auditors identified four new findings (for a new total of six) in 

incentives to invent, invest in the areas of security program planning and management, access controls, and service 

research, commercialize new continuity. (Financial Statements and Accountability Audits: FSD-16700 and 16701) 

technology, and draw attention to 

inventions that would otherwise 

go unnoticed. USPTO also 

collects, assembles, publishes, Investigations 

and disseminates technological 

information disclosed in Former USPTO Employee Pleads Guilty to patents. 

Possession of Child Pornography 

A former patent examiner was convicted of possession of child pornography after an OIG investi­


gation established that he had used both his government and personal computers to access and down­


load sexually explicit material depicting children, which he transported between his USPTO office and 


residence. On January 31, 2005, the defendant waived indictment and pleaded guilty in U.S. District Court 


for the Eastern District of Virginia to a one-count criminal information charging him with violating 18 USC § 


2252A (a)(5). As part of a plea arrangement, the former employee also agreed to forfeit to the government two personal 


computers seized during the course of the investigation. Sentencing is scheduled for April 2005. (Washington Field Office) 

March 2005/Semiannual Report to Congress 35 
36 U.S. Department of Commerce/Office of Inspector General 
DEPARTMENT-WIDE 

MANAGEMENT 

Audit of Department’s FY 2004 Consolidated 

Financial Statements The 

United 

States FY 2004 marked the sixth consecutive year that Commerce received an unqualified opinion 

Department of Commerce 

on its consolidated financial statements. The independent auditors found that the Departpromotes job creation and ment has established an internal control structure that facilitates preparation of reliimproved living standards for all able financial and performance information, but noted one reportable condition reAmericans by creating infrastructure lated to its financial management systems. There also was one instance of nonthat fosters economic growth, compliance with OMB Circular A-11, Preparation, Submission, and Execution 

technological competitiveness, and of the Budget.
 

sustainable growth. The Department has
 

three strategic goals: IT controls. Although the auditors again found IT controls in all six FISCAM 

areas had improved, they noted continuing weaknesses throughout the DeGoal 1: Provide the information and the partment in entitywide security, and deficiencies at select bureaus in the 

framework to enable the economy to operate areas of access controls, application software development and change 

efficiently and equitably. control, system software, segregation of duties, and service continuity. 

Goal 2: Provide the infrastructure innovation to Automated budgetary controls and integrated financial management. 


enhance American competitiveness. NIST implemented the Commerce Business Systems (CBS) funds con­


trol module at the beginning of FY 2004 as recommended by the audit 


Goal 3: Observe and manage the Earth’s 

of FY 2003. The Department also completed implementation of CBS in 


environment to promote sustainable growth. NTIA and Technology Administration. 

The Department has also established a Compliance with Laws and Regulations 

Management Integration Goal that is equally 

important to all bureaus: Strengthen Compliance testing of the Department’s financial management procedures 

management at all levels. and systems showed improvement in one area and remaining deficiencies in 

two others: 

Federal Financial Management Improvement Act of 1996. The auditors determined that the Department’s financial management systems substantially complied 

with the requirements of the act. 

OMB Circular A-11, Preparation, Submission, and Execution of Budget. The Department was noncompliant with the circular in one instance: although NOAA fully funded the 11 

capital leases identified as underfunded in the 2003 audit, it identified another 65 leases that require 

full funding. NOAA indicated that it has since reduced this number to 53 and plans to fully fund the 

remaining leases in FY 2005. 

Additional Concern. NOAA identified two reimbursable agreements with nonprofit entities that contained indemnification clauses, 

which raised concerns about compliance with the Anti-Deficiency Act. NOAA amended the agreements in June and July 2004 to resolve 

the concerns. At the request of the Office of General Counsel, NOAA initiated an investigation into whether execution of the two 

agreements violated the act, and reported on October 8, 2004, that such violation did occur. The violations were reported to the President 

and Congress, as required by 31 USC § 1351. (Financial Statements and Accountability Audits: FSD-16696 and16697) 

March 2005/Semiannual Report to Congress 37 
Department-wide Management 

Source: FY 1996-FY 2004 U.S. Department of Commerce financial statements audit 

reports. 

Preaward Financial Assistance 

Screening 

As part of our ongoing emphasis on preventing fraud, waste, and 

abuse, we continue to work with the Office of Acquisition Management, NOAA and NIST grant offices, and EDA program offices to screen the Department’s proposed grants and cooperative 

agreements before they are awarded. Our screening serves two 

functions: it provides information on whether the applicant has 

unresolved audit findings and recommendations on earlier awards, 

and it identifies any negative financial or investigative history on 

individuals or organizations connected with a proposed award. 

On January 1, 2004, we implemented new policies and procedures 

for our preaward screening process. OIG and the Department determined that there are several categories of recipients for whom 

the costs and administrative burden of the screening process may 

well outweigh the government’s risk of financial loss. Our new 

policies exempt from review recipients who (1) receive awards in 

amounts of $100,000 or less, (2) have received financial assistance from the Department for 3 or more consecutive years without any adverse program or audit findings, or (3) are units of a 

state or local government. 

During this period we screened 100 proposed awards. For 6 of the 

awards, we found significant deficiencies—such as poor financial 

condition, unresolved audit findings, or criminal history—that 

could affect the ability of the prospective recipients to maintain 

proper control over federal funds. On the basis of the information 

we provided, the Department delayed 5 awards to resolve concerns and established special conditions for 1 award. (Office of 

Audits) 

PREAWARD SCREENING RESULTS
 

Award 

Results Number Amount 

Awards delayed to resolve concerns 5 $3,235,148
 

Special award conditions established 1 $2,000,000
 

Nonfederal Audit Activities 

In addition to undergoing OIG-performed audits, certain recipients of Commerce financial assistance are periodically examined 

by state and local government auditors or independent public accountants. OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, sets forth the audit requirements for most of these audits. For-profit organizations that receive Advanced Technology Program funds from NIST are audited in accordance with Government Auditing Standards and NIST 

Program-Specific Audit Guidelines for ATP Cooperative Agreements, issued by the Department. 

We examined 161 audit reports during this semiannual period to 

determine whether they contained any audit findings related to 

Commerce programs. For 105 of these reports, the Department 

acts as oversight agency and monitors the audited entity’s compliance with OMB Circular A-133 or NIST’s program-specific reporting requirements. The other 56 reports are from entities for 

which other federal agencies have primary oversight responsibility. We identified 20 reports with findings related to the Department of Commerce. 

Report Category 

OMB 

A-133 

Audits 

ATP 

ProgramSpecific 

Audits Total 

Pending (October 1, 2004) 17 72 89 

Received 87 93 180 

Examined 94 67 161 

Pending (March 31, 2005) 10 98 108 

The following table shows a breakdown, by bureau, of the nearly 

$249 million in Commerce funds audited. 

38 U.S. Department of Commerce/Office of Inspector General 
Department-wide Management 

Bureau Funds 

EDA $ 27,947,588 

NIST* 125,932,093 

NOAA 15,102,095 

NTIA 1,165,587 

MBDA 338,750 

Multiagency 76,441,190 

Agency not identified 1,978,342 

Total $248,905,645 

* Includes $111,870,713 in ATP program-specific audits. 

In most reports the subject programs were not considered major 

programs; thus the audits involved limited transaction and compliance testing against laws, regulations, and grant terms and conditions. The 20 reports with Commerce findings are listed in Appendix B-1. (Atlanta and Denver Regional Offices of Audits) 

March 2005/Semiannual Report to Congress 39 

OFFICE OF 

INSPECTOR GENERAL 

OIG Investigations Receives Top Mark 

in Quality Assessment Review 

The 

mission of All OIGs granted statutory law enforcement authority under the Homeland Security Act are 

the Office of required by the Attorney General’s Guidelines for such organizations to participate in a 

Inspector General is to regular program of quality assessment review. Pursuant to this program, the investigapromote economy, efficiency, tive operations of each OIG are subject to a peer review by a fellow OIG every 3 years. 

and effectiveness and detect and The results of these reviews are communicated to the Attorney General and the reprevent waste, fraud, abuse, and viewed OIG, and are intended to ensure compliance with applicable guidelines 

mismanagement in the programs and established by the President’s Council on Integrity and Efficiency (PCIE) and the 

operations of the U.S. Department of Attorney General, as well as to improve/facilitate substantive communications 

Commerce. Through its audits, within the OIG investigative community regarding efficient procedures and best 

inspections, performance evaluations, and practices. 

investigations, OIG proposes innovative 

ideas and constructive solutions that lead During this semiannual period, the General Services Administration’s OIG comto positive changes for the Department. pleted the quality assessment review of our Office of Investigations, and found 

By providing timely, useful, and reliable our internal safeguards and management procedures in full compliance with the 

information and advice to departmental quality standards established by the PCIE and the Attorney General’s Guideofficials, the administration, and lines.
 

Congress, OIG’s work helps improve
 

Commerce management and operations
 

as well as its delivery of services to
 

the public. Update of Quality Standards 

for Inspections Issued 

In January 2005, the Commerce OIG disseminated a revised edition of the Quality Standards for Inspections (the 

“Blue Book”)—a publication of the PCIE and the Executive 

Council on Integrity and Efficiency (ECIE) originally issued in 

1993. 

The 14 standards establish strict criteria against which offices of inspector general 

should plan and conduct inspections and evaluations. Such standards have been broadly embraced by 

OIGs at all levels of government to help maintain their strong reputations for impartiality and credibility. 

Though compliance with the standards is voluntary, Commerce IG Johnnie Frazier urged inspectors 

general to follow them. “These standards ensure that the findings of inspections and evaluations are as 

valuable, reliable, and irrefutable as those of our audits and investigations,” Frazier stated. “At the same 

time, they allow the flexibility to approach the issues from our own perspectives and according to our 

own needs and interests.” Frazier chairs the PCIE Inspection & Evaluation Committee, which updated 

the standards. 

Two of the 14 standards are new—“Performance Measurement” and “Working Relationships and Communication.” These reflect the 

government-wide focus on results—offices of inspector general should be able to document the impact of their work, like any other 

federal entity; and positive interactions with those they inspect make it more likely that recommended improvements will be accepted. 

March 2005/Semiannual Report to Congress 41 
Office of Inspector General 

In revising the standards, the federal councils considered input 

from their membership and drew from the following sources: 

• 	The PCIE Quality Standards for Federal Offices of 

Inspector General (the “Silver Book”). 

• 	The Association of Inspectors General Principles and 

Standards for Offices of Inspector General. 

• 	The Government Accountability Office’s Government 

Auditing Standards (the “Yellow Book”). 

The PCIE is an interagency group of inspectors general from cabinet-level departments and major federal agencies, who are appointed by the President of the United States. 

The interagency ECIE is comprised of inspectors general from 

smaller federal agencies, who are appointed by their agency head. 

Special Awards 

Assistant Inspector General Receives 

Presidential Rank Award 

Each year, the President honors a small group of career senior 

executives whose accomplishments are exceptional and long running, by conferring the Presidential Rank Award. This year, Jill 

Gross, OIG’s assistant inspector general for inspections and 

program evaluations, was chosen to receive this prestigious honor. 

As head of the inspections and evaluations office, Gross is responsible for planning and managing a critical OIG work program that 

has significantly improved Commerce operations, saved millions 

of dollars for the Department and U.S. taxpayers, and ultimately 

made government work better. She has also been a key force in 

enhancing work processes and products throughout the entire IG 

community via her involvement in the President’s Council on Integrity and Efficiency. Only about 5 percent of career executives 

receive the Presidential Rank award each year. 

According to Commerce IG Johnnie Frazier, the work produced under Gross’s leadership has been instrumental in improving the quality of Commerce programs. “Ms. Gross’s accomplishments since taking the helm of our Office of Inspections and Program Evaluations in 

1998 speak for themselves. She has consistently demonstrated an extraordinary commitment to the OIG mission, and under her direction, 

the impressive work of this office has prompted major improvements 

in the operation of Commerce facilities both at home and abroad.” 

Deputy IG Receives Department’s 

Top Honor 

Deputy Inspector General Edward L. Blansitt was recently 

awarded a Gold Medal, the highest honor bestowed by the Secretary of Commerce. The Gold Medal award is given only to employees whose exemplary achievements have directly enhanced 

the operations of the Department or the well-being of the nation. 

Inspector General Frazier stated that Blansitt was nominated for 

the award for his leadership and management performance, for 

leading the senior staff in developing plans and budgets that reflect the office’s most important priorities, and for improving the 

quality and impact of hundreds of performance audits, inspections, 

and program evaluations reports. Blansitt has been deputy inspector general at Commerce since March 2000. 

OIG SILVER MEDAL WINNERS 

OIG staff members Martin Trocki, Frederick Meny, Patricia 

Derr, and David C. Rose each received the Silver Medal—the 

second highest honor bestowed by the Secretary of Commerce to 

the select few whose work has significantly enhanced departmental operations. Trocki, Meny, and Derr were honored for their work 

on the Census Bureau’s information technology modernization 

plans for the 2010 decennial census. Rose received the Silver Medal 

for his audits of the Department’s performance reporting, which 

have significantly enhanced the quality of Commerce data reported 

to Congress. 

Other Activities of Note 

OIG Sponsors Federal Contracting 

Conference 

OIG’s Denver Regional Office held a successful 3-day conference 

on federal contracting February 7-9, 2005. “An Overview of Federal Contracting,” presented by former Air Force contracting officer Gerald Francis, attracted 20 participating auditors interested 

in better oversight of federal contracts from the OIGs of the departments of Energy, Housing and Urban Development, Commerce, 

and the National Science Foundation. Topics covered ranged from 

acquisition planning and procurement requests to terminations, 

claims and disputes, and time and materials contracts. 

IGs Frazier, Tinsley Presenters at Alaska 

Audit Forum 

In October 2004, Commerce Inspector General Johnnie E. Frazier 

gave a joint presentation with IG Nikki Tinsley (Environmental 

Protection Agency) on the importance of federal, state, and local 

collaboration in improving government programs and operations 

at the 2-day Pacific Northwest Intergovernmental Audit Forum in 

Anchorage, Alaska. The forum brought together federal, state, and 

municipal auditors as well as representatives from the Government Accountability Office. 

42 U.S. Department of Commerce/Office of Inspector General 
Office of Inspector General 

TABLES AND STATISTICS 

Statistical Overview 

TABLES PAGE 

1. Investigative Statistical Highlights for this Period .................................................................................................................... 43
 

2. Audit Resolution Follow-Up ..................................................................................................................................................... 44
 

3. Audit and Inspection Statistical Highlights for this Period ...................................................................................................... 44
 

4. Audits with Questioned Costs ................................................................................................................................................... 45
 

5. Audits with Recommendations that Funds Be Put to Better Use ............................................................................................. 45
 

APPENDIXES 

A. Report Types this Period ........................................................................................................................................................... 46
 

A-1. Performance Audits .......................................................................................................................................................... 46
 

A-2. Financial Assistance Audits .............................................................................................................................................. 47
 

A-3. Financial Statements Audits ............................................................................................................................................. 48
 

A-4. Inspections and Systems Evaluations ............................................................................................................................... 48
 

B. Processed Reports ..................................................................................................................................................................... 49
 

B-1. Processed Reports with Audit Findings ............................................................................................................................ 50
 

Table 1. Investigative Statistical Highlights 

for this Period 

Criminal Investigative Activities 

Arrests 

Indictments and informations 

Convictions 

Personnel actions 

Fines, restitutions, judgments, and other 

civil and administrative recoveries 

7 

3 

1 

6 

$69,971 

Allegations Processed 

Accepted for investigation 

Referred to operating units 

35 

56 

Evaluated but not accepted for investigation or referral 15 

Total 106 

Audit Resolution and Follow-up 

The Inspector General Act Amendments of 1988 require us to 

present in this report those audits issued before the beginning of 

the reporting period (October 1, 2004) for which no management 

decision had been made by the end of the period (March 31, 2005). 

Two audit reports remain unresolved for this reporting period (see 

page 33). 

Department Administrative Order 213-5, Audit Resolution and 

Follow-up, provides procedures for management to request a modification to an approved audit action plan or for a financial assistance recipient to appeal an audit resolution determination. The 

following table summarizes modification and appeal activity during the reporting period. 

March 2005/Semiannual Report to Congress 43
Office of Inspector General 

Table 2. Audit Resolution Follow-Up 

Report Category Modifications Appeals 

Actions pending (October 1, 2004) 0 8 

Submissions 0 7 

Decisions 0 6 

Actions pending (March 31, 2005) 0 9 

Table 4. Audits with Questioned Costs 

Report Category 

A. Reports for which no management decision had been made 

by the beginning of the reporting period 

B. Reports issued during the reporting period 

Total reports (A+B) requiring a management decision 

during the reporting period1 

C. Reports for which a management decision was made
 

during the reporting period2
 

i. Value of disallowed costs 

ii. Value of costs not disallowed 

D. Reports for which no management decision had been
 

made by the end of the reporting period
 

Table 3. Audit and Inspection Statistical 

Highlights for this Period 

Questioned costs $14,915,037* 

Value of audit recommendations 

that funds be put to better use 421,340 

Value of audit recommendations 

agreed to by management 6,021,206 

*This number includes costs questioned by state and local government auditors 

or independent public accountants. 

Number	 Questioned Costs Unsupported Costs 

28 $8,844,315 $1,805,765 

23 14,915,037 6,451,608 

51	 23,759,352 8,257,373 

26	 5,571,293 1,805,765 

1,905,543 211,652 

3,665,750 1,594,113 

25	 18,188,059 6,451,608 

1

Seven audit reports included in this table are also included among reports with recommendations that funds be put to better use (see table 5). However, the dollar 

amounts do not overlap. 

2

In Category C, lines i and ii do not always equal the total on line C because resolution may result in values different than the original recommendations. 

44 U.S. Department of Commerce/Office of Inspector General 
Office of Inspector General 

Table 5. Audits with Recommendations that Funds Be Put to Better Use 

Report Category Number Value 

A. Reports for which no management decision had been made 

by the beginning of the reporting period 7 $6,834,605 

B. Reports issued during the reporting period 3 421,340 

Total reports (A+B) requiring a management decision 

during the reporting period1 10 7,255,945 

C. Reports for which a management decision was made 

during the reporting period2 7 6,834,605 

i. Value of recommendations agreed to by management 4,115,663 

ii. Value of recommendations not agreed to by management 2,718,942 

D. Reports for which no management decision had been made 

by the end of the reporting period 3 421,340 

1

Seven audit reports included in this table are also included in the reports with questioned cost (see table 4). However, the dollar amounts do not overlap. 

2

In Category C, lines i and ii do not always equal the total on line C because resolution may result in values different than the original recommendations. 

Definitions of Terms Used 

in the Tables 

Questioned cost: a cost questioned by OIG because of (1) an alleged violation of a provision of a law, regulation, contract, grant, 

cooperative agreement, or other agreement or document governing the expenditure of funds; (2) a finding that, at the time of the 

audit, such cost is not supported by adequate documentation; or 

(3) a finding that an expenditure of funds for the intended purpose 

is unnecessary or unreasonable. 

Unsupported cost: a cost that, at the time of the audit, is not supported by adequate documentation. Questioned costs include unsupported costs. 

Recommendation that funds be put to better use: an OIG recommendation that funds could be used more efficiently if Commerce management took action to implement and complete the 

recommendation, including (1) reductions in outlays; (2) 

deobligation of funds from programs or operations; (3) withdrawal 

of interest subsidy costs on loans or loan guarantees, insurance, or 

bonds; (4) costs not incurred by implementing recommended improvements related to Commerce, a contractor, or a grantee; (5) 

avoidance of unnecessary expenditures identified in preaward reviews of contracts or grant agreements; or (6) any other savings 

specifically identified. 

Management decision: management’s evaluation of the findings 

and recommendations included in the audit report and the issuance of a final decision by management concerning its response to 

such findings and recommendations, including actions concluded 

to be necessary. 

March 2005/Semiannual Report to Congress 45
Office of Inspector General 

Appendix A. Report Types this Period 

Type Number of Reports Appendix 

Performance audits 4 A-1 

Financial assistance audits 12 A-2 

Financial statements audits 6 A-3 

Inspections and systems evaluations 3 A-4 

Total 25 

Appendix A-1. Performance Audits 

Funds to 

Be Put to 

Report Title Report Number Date Issued Better Use 

Economics and Statistics Administration 

Some Improvements are Needed in the Handling of Reimbursable 

Agreements and the Sale of Products and Services FSD-16824-5-0001 03/31/05 — 

Management Controls Over Reimbursable Agreements at the 

U.S. Census Bureau Need Improvement FSD-16824-5-0002 03/31/05 — 

National Oceanic and Atmospheric Administration 

Inadequate Support Undercuts Value of Booz Allen Study 

and Its Recommended Changes to NOAA’s Finance and 

Administration Services DEN-16948-5-0001 03/07/05 — 

Satellite Memorandums of Agreement Should Be Improved 

By Using New Guidance BSD-16927-5-0001 03/31/05 — 

46 U.S. Department of Commerce/Office of Inspector General 
University of New Hampshire 

Public Telecommunications 

Facilities Program Project ATL-16981-5-000103/29/05 

Office of Inspector General 

Appendix A-2. Financial Assistance Audits 

Value of 

Funds to Federal Federal 

Date Be Put to Amount Amount 

Report Title Report Number Issued Better Use Questioned Unsupported 

Economic Development Administration 

Utah Department of Community & 

Economic Development DEN-17065-5-0001 03/30/05 — — — 

Economics & Statistics Administration 

ITS Services, Inc., VA DEN-16724-5-0001 11/24/04 — $2,331,514 $1,060,647 

ITS Services, Inc., VA DEN-16724-5-0002 02/22/05 — 5,576,197 1,751,758 

ITS Services, Inc., VA DEN-16724-5-0003 03/15/05 — 579,666 410,618 

National Institute of Standards and Technology 

Reactive Nano Technologies, Inc., MD DEN-16893-5-0001 02/17/05 — — — 

Dimensional Control Systems, Inc., MI DEN-16926-5-0001 03/28/05 — 252,235 166,081 

AC Photonics, Inc., CA DEN-16869-5-0001 03/31/05 — 704 — 

National Oceanic and Atmospheric Administration 

Northwest Indian Fisheries 

Commission, Audit of the Subgrant 

with the Muckleshoot Tribe, WA STL-16657-5-0002 02/11/05 — 540,902 50,618 

Northwest Indian Fisheries 

Commission, Audit of Subgrant 

with the Tulalip Tribe, WA STL-16657-5-0006 02/23/05 — — — 

Northwest Indian Fisheries 

Commission, Audit of Subagreement 

with the Makah Tribe, WA STL-16657-5-0004 03/31/05 — 441,250 441,250 

National Telecommunications and Information Administration 

— — — –— 

March 2005/Semiannual Report to Congress 47
Office of Inspector General 

Appendix A-3. Financial Statements Audits 

Report Title Report Number Date Issued 

National Technical Information Service 

NTIS’ FY 2004 Financial Statements FSD-16698-5-0001 11/08/04 

Assessment of Information Technology Controls Supporting NTIS’ 

Financial Management Systems FY 2004 Financial Statement Audit FSD-16699-5-0001 11/09/04 

Office of the Secretary 

Department of Commerce’s FY 2004 Consolidated Financial Statements FSD-16696-5-0001 11/08/04 

Assessment of Information Technology Controls Supporting DOC’s 

Financial Management Systems FY 2004 Financial Statement Audit FSD-16697-5-0001 11/09/04 

United States Patent and Trademark Office 

USPTO FY 2004 Financial Statements FSD-16700-5-0001 11/08/04 

Assessment of Information Technology Controls Supporting USPTO’s 

Financial Management Systems FY 2004 Financial Statement Audit FSD-16701-5-0001 11/09/04 

Appendix A-4. Inspections and System Evaluations 

Report Title Report Number Date Issued 

Funds to Be 

Put to 

Better Use 

Bureau of Industry and Security 

The Export Licensing Process for Chemical and 

Biological Commodities Is Generally Working Well, 

But Some Issues Need Resolution IPE-16946 3/31/05 — 

Annual Follow-up Report on Previous Export Controls 

Recommendations, as Mandated by the National Defense 

Authorization Act for Fiscal Year 2000, as Amended IPE-17361 3/31/05 — 

International Trade Administration 

Import Administration Has Met Most Statutory Deadlines 

on Antidumping Reviews, But Management Attention Is 

Needed in Other Areas IPE-16952 3/31/05 — 

48 U.S. Department of Commerce/Office of Inspector General 
Office of Inspector General 

Appendix B. Processed Reports 

The Office of Inspector General reviewed and accepted 161 audit reports prepared by independent public accountants and local, state, 

and other federal auditors. The reports processed with questioned costs, recommendations that funds be put to better use, and/or nonfinancial recommendations are listed in Appendix B-1. 

Agency Audits 

Economic Development Administration .................................................................................................................... 29
 

National Institute of Standards and Technology* ....................................................................................................... 77
 

National Oceanic and Atmospheric Administration ................................................................................................... 11
 

National Telecommunications and Information Administration ................................................................................... 3
 

Minority Business Development Agency ..................................................................................................................... 1
 

Multiagency ................................................................................................................................................................ 33
 

Agency not identified .................................................................................................................................................... 7
 

Total .......................................................................................................................................................................... 161
 

*Includes 67 ATP program-specific audits. 

March 2005/Semiannual Report to Congress 49
Office of Inspector General 

Appendix B 1. Processed Reports with Audit Findings 

Report Title Report Number Date Issued 

Economic Development Administration 

Commonwealth of Puerto Rico, 

Municipality of Rincon ATL-09999-5-2007 03/15/05 

City of Fort Worth, TX ATL-09999-5-1983 03/17/05 

Genesee Finger Lakes Regional 

Planning Council, NY ATL-09999-5-2043 03/17/05 

City of Flint, MI ATL-09999-5-1852 03/18/05 

National Institute of Standards and Technology 

Molecular Applications Group, CA ATL-09999-5-1920 10/21/04 

Lexia Learning Systems, Inc., MA ATL-09999-5-1596 11/04/04 

GE Global Research, NY ATL-09999-5-1834 11/05/04 

NanoNexus, Inc., CA DEN-09999-5-1739 11/05/04 

nLine Corporation, TX DEN-09999-5-1772 11/10/04 

E.I. du Pont de Nemours and 

Company, NC DEN-09999-5-1798 11/23/04 

Georgia Tech Research Corporation DEN-09999-5-1743 11/30/04 

Phoenix Science & 

Technology, Inc., MA ATL-09999-5-1481 12/14/04 

Sarnoff Corporation, NJ ATL-09999-5-1767 12/15/04 

Delphi Delco Electronics Systems, IN DEN-09999-5-1742 01/05/05 

Organ Recovery Systems, Inc., SC ATL-09999-5-1969 02/10/05 

Intermet Corporation, MI ATL-09999-5-1599 03/15/05 

Microscan Systems, Inc., WA ATL-09999-5-1835 03/15/05 

Mississippi Technology Alliance ATL-09999-5-2041 03/15/05 

Minnesota Technology, Inc. ATL-09999-5-1991 03/17/05 

National Telecommunications and Information Administration 

Maine Public Broadcasting Corporation ATL-09999-5-2000 03/15/05 

50 U.S. Department of Commerce/Office of Inspector General 
Office of Inspector General 

REPORTING REQUIREMENTS 

The Inspector General Act of 1978, as amended, specifies reporting requirements for semiannual reports. The requirements are listed 

below and indexed to the applicable pages of this report. 

Section Topic Page 

4(a)(2) ......................................... Review of Legislation and Regulations ................................................................................ 51-52
 

5(a)(1) ......................................... Significant Problems, Abuses, and Deficiencies ................................................................... 11-39
 

5(a)(2) ......................................... Significant Recommendations for Corrective Action ........................................................... 11-39
 

5(a)(3) ......................................... Prior Significant Recommendations Unimplemented ............................................................... 51
 

5(a)(4) ......................................... Matters Referred to Prosecutive Authorities .............................................................................. 43
 

5(a)(5) and 6(b)(2) ...................... Information or Assistance Refused ............................................................................................ 52
 

5(a)(6) ......................................... Listing of Audit Reports ....................................................................................................... 43-50
 

5(a)(7) ......................................... Summary of Significant Reports ........................................................................................... 11-39
 

5(a)(8) ......................................... Audit Reports—Questioned Costs ............................................................................................. 45
 

5(a)(9) ......................................... Audit Reports—Funds to Be Put to Better Use ......................................................................... 45
 

5(a)(10) ....................................... Prior Audit Reports Unresolved ................................................................................................. 52
 

5(a)(11) ....................................... Significant Revised Management Decisions.............................................................................. 52
 

5(a)(12) ....................................... Significant Management Decisions with which OIG Disagreed ............................................... 52
 

4(a)(2): Review of Legislation and 

Regulations 

This section requires the inspector general of each agency to review existing and proposed legislation and regulations relating to 

that agency’s programs and operations. Based on this review, the 

inspector general is required to make recommendations in the semiannual report concerning the impact of such legislation or regulations on the economy and efficiency of the management of programs and operations administered or financed by the agency or 

on the prevention and detection of fraud and abuse in those programs and operations. Comments concerning legislative and regulatory initiatives affecting Commerce programs are discussed, as 

appropriate, in relevant sections of the report. 

Section 5(a)(3): Prior Significant 

Recommendations Unimplemented 

This section requires identification of each significant recommendation described in previous semiannual reports for which corrective action has not been completed. Section 5(b) requires that the 

Secretary transmit to Congress statistical tables showing the number and value of audit reports for which no final action has been 

taken, plus an explanation of the reasons why recommended action has not occurred, except when the management decision was 

made within the preceding year. To include a list of all significant 

unimplemented recommendations in this report would be duplicative. Information on the status of any audit recommendations 

can be obtained through OIG’s Office of Audits. 

March 2005/Semiannual Report to Congress 51
Office of Inspector General 

Sections 5(a)(5) and 6(b)(2): Information or 

Assistance Refused 

These sections require a summary of each report to the Secretary 

when access, information, or assistance has been unreasonably 

refused or not provided. There were no instances during this semiannual period and no reports to the Secretary. 

Section 5(a)(10): Prior Audit Reports 

Unresolved 

This section requires a summary of each audit report issued before the beginning of the reporting period for which no management decision has been made by the end of the reporting period 

(including the date and title of each such report), an explanation 

of why a decision has not been made, and a statement concerning 

the desired timetable for delivering a decision on each such report. There were two NIST reports more than 6 months old. (See 

page 33.) 

Section 5(a)(11): Significant Revised 

Management Decisions 

This section requires an explanation of the reasons for any significant revision to a management decision made during the reporting 

period. Department Administrative Order 213-5, Audit Resolution 

and Follow-up, provides procedures for revising a management 

decision. For performance audits, OIG must be consulted and must 

approve in advance any modification to an audit action plan. There 

were none for this period. For financial assistance audits, OIG must 

concur with any decision that would change the audit resolution 

proposal in response to an appeal by the recipient. The decisions 

issued on the six appeals of audit-related debts were finalized with 

the full participation and concurrence of OIG. 

Section 5(a)(12): Significant Management 

Decisions with which OIG Disagreed 

This section requires information concerning any significant management decision with which the inspector general disagrees. Department Administrative Order 213-5 provides procedures for elevating unresolved audit recommendations to higher levels of 

Department and OIG management, including their consideration 

by an Audit Resolution Council. During this period no audit issues were referred to the council. 

52 U.S. Department of Commerce/Office of Inspector General 
ACRONYMS
 

APHIS....................................................................................................................................Animal and Plant Health Inspection Service
 

ATP ........................................................................................................................................................... Advanced Technology Program
 

BEA ............................................................................................................................................................. Bureau of Economic Analysis
 

BIS ............................................................................................................................................................Bureau of Industry and Security
 

CBS............................................................................................................................................................... Commerce Business Systems
 

C&A ............................................................................................................................................................ certification and accreditation
 

CDC ....................................................................................................................................... Centers for Disease Control and Prevention
 

CIO ....................................................................................................................................................................... chief information officer
 

DAS .................................................................................................................................................................. Deputy Assistant Secretary
 

DSS .................................................................................................................................................................Diplomatic Security Service
 

ECASS .................................................................................................................................... Export Control Automated Support System
 

ECIE ...................................................................................................................................Executive Council on Integrity and Efficiency
 

EDA ............................................................................................................................................. Economic Development Administration
 

ESA................................................................................................................................................Economics & Statistics Administration
 

FDCA ....................................................................................................................................................Field Data Collection Automation
 

FISCAM ............................................................................................................................. Federal Information System Controls Manual
 

FISMA .............................................................................................................................. Federal Information Security Management Act
 

FMFIA ....................................................................................................................................... Federal Managers Financial Integrity Act
 

GOES ........................................................................................................................ Geostationary Operational Environmental Satellites
 

GPRA ...................................................................................................................................... Government Performance and Results Act
 

IA ............................................................................................................................................................................. Import Administration
 

IG ..................................................................................................................................................................................... inspector general
 

IT ........................................................................................................................................................................... information technology
 

ITA ....................................................................................................................................................... International Trade Administration
 

MBDA ........................................................................................................................................ Minority Business Development Agency
 

March 2005/Semiannual Report to Congress 53
Acronyms 

MOA ................................................................................................................................................................ memorandum of agreement
 

MOU .......................................................................................................................................................... memorandum of understanding
 

NASA .............................................................................................................................. National Aeronautics and Space Administration
 

NDAA ................................................................................................................................................ National Defense Authorization Act
 

NIST ................................................................................................................................ National Institute of Standards and Technology
 

NESDIS ................................................................................................ National Environmental Satellite, Data, and Information Service
 

NMFS ................................................................................................................................................... National Marine Fisheries Service
 

NOAA ......................................................................................................................... National Oceanic and Atmospheric Administration
 

NTIA........................................................................................................ National Telecommunications and Information Administration
 

NWS ................................................................................................................................................................... National Weather Service
 

OIG .................................................................................................................................................................. Office of Inspector General
 

OMB .................................................................................................................................................... Office of Management and Budget
 

OSY ................................................................................................................................................................................ Office of Security
 

PCIE ................................................................................................................................. President’s Council on Integrity and Efficiency
 

POES ...................................................................................................................................... Polar Operational Environmental Satellites
 

RIMS ......................................................................................................................................... Regional Input-Output Modeling System
 

USDA ....................................................................................................................................................... U.S. Department of Agriculture
 

USPTO ................................................................................................................................... United States Patent and Trademark Office
 

54 U.S. Department of Commerce/Office of Inspector General 
TYPES OF OIG WORK PRODUCTS
 

The various kinds of audits, evaluations, inspections, and investigations at our disposal enable the IG’s office to assess Commerce 

programs and operations from a range of perspectives. Thus we 

are able to provide program managers with reviews and recommendations that are either narrowly focused or comprehensive, as 

needed, to aid them in ensuring the most efficient and effective 

use of taxpayer dollars. 

AUDITS 

Performance Audits address the efficiency, effectiveness, and 

economy of the Department’s programs, activities, and information technology systems. They may check a unit’s compliance with 

laws and regulations, and evaluate its success in achieving program objectives. They may also involve reviewing the Department’s 

financial assistance awards by assessing an award recipient’s compliance with laws, regulations, and award terms; allowance of costs; 

and the degree to which projects achieved intended results. 

Financial Audits determine whether (1) a reporting entity’s financial statements are presented fairly and in accordance with 

generally accepted accounting principles; (2) the entity has an 

internal control structure that provides reasonable assurance of 

achieving the control objectives set forth by OMB; and (3) the 

entity complied with laws and regulations that could have a direct and material effect on the financial statements, the Federal 

Financial Management Improvement Act, and other laws and 

regulations. 

Attestation Engagements involve examining, reviewing, or performing agreed-upon procedures on a subject matter or an assertion about a subject matter and reporting the results. Attestation 

engagements can have a broad range of financial or nonfinancial 

focuses, such as an entity’s compliance with laws and regulations, 

management’s discussion and analysis presentations, and 

allowability and reasonableness of final grant and contract costs. 

INSPECTIONS 

Inspections are reviews of an activity, unit, or office, or a contractor 

or other nonfederal entity that receives funds from the Department. 

They focus on an organization, not a whole program, and are often 

designed to give agency managers timely and useful information about 

operations, including current and foreseeable problems. 

EVALUATIONS 

Program Evaluations are in-depth reviews of specific management issues, policies, or programs. 

Systems Evaluations review system development, acquisitions, 

operations, and policy, focusing on computer systems and other 

technologies. 

INVESTIGATIONS 

Investigations are conducted based on alleged or suspected wrongdoing by Department employees, contractors, recipients of financial assistance, and others responsible for handling federal resources. Investigations that expose violations of Department rules 

and regulations or acts of fraud committed against the U.S. government can result in administrative sanctions and/or criminal or 

civil prosecution. 

March 2005/Semiannual Report to Congress 55
March 2005

to Congress

March 2005

to Congress